INDIA Law and Practice Contributed by: Shilpa Mankar Ahluwalia, Purva Anand and Ansh Jain, Shardul Amarchand Mangaldas & Co
2.10 Significant Enforcement Actions In the case of non-compliance with the regulatory framework (see 2.2 Regulatory Regime ), the RBI may undertake enforcement actions under the provisions of the 1934 Reserve Bank of India Act, the 1949 Bank - ing Regulation Act or the PSS Act. The RBI has increased its regulatory scrutiny and cor - responding enforcement actions against REs over the last three years, primarily by way of actions imposing monetary fines, penalties and business restrictions. In exceptional cases, the RBI has also revoked authori - sations and licences granted to defaulting REs. 2.11 Implications of Additional, Non- Financial Services Regulations Certain non-financial services regulations (such as those relating to privacy/data protection, social media content, and access to Aadhaar for customer verifica - tion) are governed by independent regulatory frame - works, which indirectly impact delivery of financial services: • the Current Data Privacy Framework requires certain REs (including banks, NBFCs, PPI issu - ers) to maintain a publicly available privacy policy and handle customer data in accordance with the framework and such policy; • the Data Localisation Circular (see 2.2 Regulatory Regime ); • the Aadhaar framework (see 2.4 Variations Between the Regulation of Fintech and Legacy Players ); and • the intermediary guidelines/rules under the IT Act require intermediaries to monitor the display and sharing of data on their platforms and to ensure that such data is not appropriated from someone else, does not infringe on intellectual property, and does not violate any other prevailing laws. 2.12 Review of Industry Participants by Parties Other Than Regulators Besides regulators and quasi-regulatory bodies (see 2.6 Jurisdiction of Regulators ), the regulatory frame - work (see 2.2 Regulatory Regime ) requires REs to have in place several checks and balances that serve to review the functioning and operations of industry participants. By way of an indicative overview:
• banks and NBFCs are subject to a detailed ongo - ing compliance framework that involves a review of their operations by external auditors/accountants; and • the RBI has set up designated ombudsman offices under its management and supervision, charged with receiving and considering complaints from customers relating to the deficiencies in banking or other digital payment services, creating an addi - tional, consumer-driven oversight mechanism on REs. These compliances represent strict regulatory require - ments, deviation from which can lead to enforcement actions and/or penal consequences by the RBI (see 2.10 Significant Enforcement Actions ). Thus, indus - try practice is fairly aligned with the regulatory man - date and there is little room for adopting alternative approaches. 2.13 Conjunction of Unregulated and Regulated Products and Services While regulated products are offered by REs (such as banks, NBFCs and PPI issuers), several interme - diaries and service providers (that may not fall within the regulatory framework) have emerged to cater to gaps that may arise in the delivery of financial services and to ensure a seamless, end-to-end digital product delivery. Some of these have led to the emergence of interesting market trends in the Indian fintech space. Credit Analysis Traditional credit information in India is collated by specialised REs called credit information companies (CICs). Access to traditional credit information through such CICs was originally restricted only to REs. Some non-bank entities, fulfilling the criteria prescribed by the RBI, have now been allowed to access informa - tion from CICs. However, these criteria are still quite strict (including, inter alia, a net worth of at least INR20 million, Indian-owned and controlled status, at least three years of experience in data processing and a clean track record). Owing to such restricted access to traditional credit information, a market space for unregulated players to undertake non-traditional “behavioural scoring” has grown in India. These fintech entities typically utilise
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