Big Tech Firms Providing Financial Services Pose Risk To Financial Stability: RBI

The Reserve Bank Of India(RBI) has raised concerns that Big tech companies offering financial services pose risk to financial stability.

This, the RBI attributed to their complex intertwined operational linkages with financial institutions.

This could lead to contagion effects and potential anti-competitive behavior, the RBI said.

The central bank stated this in its 25th Financial Stability Report (FSR).
The report said that the advent of FinTech has exposed the banking system to new risks which extend beyond prudential issues and often intersect with other public policy objectives relating to the safeguarding of data privacy, cyber security, consumer protection, competition, and compliance with anti-money laundering policies.

According to the report, big techs can scale up rapidly and pose risk to financial stability, which can arise from increased disintermediation of incumbent institutions.

What RBI Is Saying
As explained in the report, the Reserve Bank of India (RBI), attributing this to cryptocurrencies said that the nature of cryptocurrencies, whereby value is based on make-believe was mere speculation not defined under a specific name whatever was a “clear danger”.

RBI’s Governor, Shaktikanta Das said that such innovations have given regulators a new challenge, as a result of trying to ensure a balance between opening up to such initiatives and on the other hand, managing the risks accompanying it, which could affect financial stability.

The report, therefore, identified the need for players in the industry, especially regulators, academicians, and FinTech firms to work together in coming up with a principle that would regulate the industry.

This, the survey recommends, with particular attention to conduct and risk management, governance, revenue models as well as business.

On one side also, the report highlights the benefits of the emerging innovations in the industry.

These, it listed, include financial inclusion, broadening the offering of financial products and services, increasing efficiency for delivery of financial services, and leading to better
accessibility, affordability, and enhanced customer experience.

This is in addition to accelerating efficiency gains in credit delivery processes, better-targeted products, improved risk management, including better underwriting models, etc.

The Indian government may be anti- cryptocurrency, but it seems to be at home with the concept of Blockchain Technology, with the RBI Governor declaring that blockchains can exist without cryptocurrencies.

Before the publication of this report, the RBI had recommended a globally coordinated regulatory approach and inter-regulatory coordination of blockchain technology.

RBI Governor, Shaktikanta Das said this while speaking at Modern BFSI Summit, organized by the Financial Express.

“When it comes to technology, it may transcend regulatory or national boundaries. The most relevant example, in this case, would be blockchain technology. Different blockchain platforms cannot be limited to a regulator or a nation,” he said.

According to Das, Decentralized Finance(DiFi) poses several challenges to regulators based onbits anonymity, lack of a centralized governance body, and legal uncertainties.

Dad also opined that the traditional approach to regulation may be rendered ineffective.

The Reserve Bank of India (RBI) hopes to cooperate with multiple top Indian banks to build a proof-of-concept blockchain project focusing on trade financing.

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