Fintech committee recommends new legal framework for consumer protection

Headline : Fintech committee recommends new legal framework for consumer protection

Details :

In News:

  • A panel on issues related to financial technology (fintech) has recently submitted its recommendations to the Finance Ministry.
  • The committee has suggested putting in place a comprehensive legal framework to protect consumers of digital services.

What Is Financial Technology (Fintech)?

  • Financial technology (Fintech) is used to describe new technologies that seeks to improve and automate the delivery and use of financial services. ​​​
  • At its core, fintech is utilized to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones.

Background:

  • The fintech panel was announced by former finance minister Arun Jaitley in his 2018-19 Budget.

Committee on issues related to financial technology

Objectives of the committee:

  • To consider various issues relating to development of Fintech space in India with a view to make Fintech related regulations more flexible and generate enhanced entrepreneurship in an area where India has distinctive comparative strengths vis-à-vis other emerging economies. 
  • The Steering Committee also focused on how Fintech can be leveraged to enhance financial inclusion of MSMEs.

Key Recommendations of the committee:

  • Examining the suitability of virtual banking system:
    • The committee suggested the Department of Financial Services (DFS) and Reserve Bank of India to examine the suitability of ‘virtual banking system’ in the Indian context.
  • Adoption of RegTech:
    • The committee has recommended adoption of regulation technology (or RegTech) by all financial sector regulators to develop standards and facilitate adoption by financial service providers.
  • Use of Financial Technologies:
    • The committee suggested usage of fintech to improve access of financial products for MSMEs, farmers and poorer sections of the society.
  • Change in the form of RBI adopting open data access approach:
    • RBI may consider making available banking data (such as transaction and account history data) for use by the financial sector, including fintech firms, (based on consumer consent and with other appropriate safeguards)
  • Study the Potential of Open data access:
    • It also recommends that all financial sector regulators study the potential of open data access among their respective regulated entities, for enhancing competition in the provision of financial services
  • Use of drones and remote sensing technologies by Insurance companies and lending agencies:
    • The panel has also recommended that insurance companies and lending agencies be encouraged to use drone and remote sensing technology for crop area, damage and location assessments to support risk reduction in insurance/lending business.
  • Coordination among Department of Financial Services (DFS) and PSU banks:
    • The Department of Financial Services (DFS) should work with PSU banks to bring in more efficiency to their work and reduce fraud and security risks.
    • Significant opportunities can be explored to increase the levels of automation using artificial intelligence (AI), cognitive analytics and machine learning in their back-end processes.
  • Digitization of land records:
    • The committee also suggested digitisation of land records across the country on a war footing.
  • Setting up a Inter-Ministerial Steering Committee:
    • The report favoured setting up of an Inter-Ministerial Steering Committee on fintech applications in the Department of Economic Affairs (DEA) to monitor progress, including exploring and suggesting the potential applications in government financial processes and applications.
  • Common fintech platform
    • The panel suggested usage of common fintech platform for MUDRA loans, small saving schemes, pension schemes and provident fund.
    • It recommended creating a common digital platform for all micro-pension schemes and government pension schemes, including EPF, through which pension subscribers can subscribe to specific schemes seamlessly.
    • It would also reduce access barriers by allowing payments through various modes such as Jan Dhan Yojana accounts, debit card, credit card, internet banking, mobile wallets etc.
  • Explore permitting digital alternatives:
    • The government should undertake a campaign to convert all financial assets held, especially by entities under its control like post offices, in demat form as far as possible but certainly in electronic form
  • Reducing the cost of KYC:
    • The committee recommended need to reduce the costs of KYC to promote financial inclusion among the weaker sections.
    • The panel suggested that there should be no charge for uploading KYC data, while every download can be priced based on the user pays principle and this will enable Central KYC to take off early.
  • Creation of a nodal agency:
    • A nodal agency to coordinate developments across ministries and regulators in the area of financial technology (fintech).
    • A dedicated team on digital economy and fintech is being set up in the Investment Division, Department of Economic Affairs for coordination on fintech with relevant ministries.

Section : Economics

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