INDIA Law and Practice Contributed by: Shilpa Mankar Ahluwalia, Himanshu Malhotra and Purva Anand, Shardul Amarchand Mangaldas & Co
10. Blockchain 10.1 Use of Blockchain in the Financial Services Industry Traditional financial services players such as banks are developing interesting and effec - tive applications for the use of blockchain for the financial services industry in India. India’s Bankchain consortium has launched a permis - sion-based blockchain for integrated and shared KYC (Primechain KYC) and is exploring its use for processing letters of credit, tax invoices, and e-way bills, particularly for MSMEs. Meanwhile, RBIH is also currently exploring a blockchain- based pilot project for reducing loan fraud. On the private side, financial blockchain start- ups in India are primarily focused on cryptocur - rency exchanges. However, there is a growing interest in newer applications for blockchain, such as supply chain financing and digital iden - tity verification. 10.2 Local Regulators’ Approach to Blockchain Unlike with cryptocurrency, the GOI and regu - lators have taken a positive stance towards blockchain technology. The RBI is playing an active part in collaborating with banks piloting blockchain applications and has also included applications of blockchain technologies to be tested in its sandbox. The GOI has developed a National Strategy on Blockchain to synergise stakeholder inputs and develop e-governance applications of block - chain. The GOI recently launched the Vishvasya blockchain technology stack to offer blockchain- as-a-service (BaaS) through a geographically distributed infrastructure designed to support various permissioned blockchain-based appli - cations. It has also announced the creation of
sub-types such as fire insurance, marine insur - ance and vehicle insurance.
9. Regtech 9.1 Regulation of Regtech Providers Most regtech providers in India are centred around providing KYC and related onboarding services. There is also a recent boost in regtech solutions focusing on end-to-end automation of securities and labour compliances. There is no direct regulation governing regtech providers in India. Certain functionalities of regtechs may, however, be subject to regulatory oversight. For example, customer onboarding regtech providers in India are typically engaged as agents of the REs through outsourcing arrangements and are subject to indirect regula - tion to some extent through audit, access rights and other similar checks and balances. In addition, under the regulatory framework gov - erning use of Aadhaar, there are certain specific data security requirements such as masking of Aadhaar information and requirements on storage of Aadhaar, which are also relevant for regtech providers utilising the Aadhaar database for their services. 9.2 Contractual Terms to Assure Performance and Accuracy See 9.1 Regulation of Regtech Providers and 2.8 Outsourcing of Regulated Functions . Requirements pertaining to assured perfor - mance and accuracy for unregulated regtechs are contractually agreed. As an industry norm, they usually contain a limitation of liability clause and an express “no warranty” clause as to their accuracy and completeness.
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