"Technology will transform the financial services space. It will bring down the cost of delivery, I love the fintech world," said Madhabi Puri Buch, chairperson of the Securities and Exchange Board of India (SEBI), in her address at the Global Fintech Fest.
Despite being late to the startup ecosystem in the past, SEBI is now planning to narrow the regulatory gap, added Buch while explaining the initiatives by SEBI with the inclusion of technology.
“By construct, a regulatory gap will always exist. If startups are building something completely new, then it has not even entered the heads of those in the regulatory body. But, when we finally show up, what is it that fintech innovators should have kept in mind to avoid a crackdown?" said Buch.
RBI Governor Shaktikanta Das, while addressing the summit on Tuesday, also stressed the same and said that the intention of the central bank is not to penalise or stifle anyone but to ensure that everyone follows traffic rules.
The statement gains significance in light of recent incidents in which a few borrowers through these apps were compelled to commit suicide, as well as the incident last week in which a young pregnant woman was run over by Mahindra Finance recovery agents in Bihar, who had funded her father's tractor.
Here are set of principles that should guide every entrepreneur in the fintech space, as mentioned by the SEBI chief:
Don’t build on anonymity, build on data: “Anonymity in the financial world is an absolute no-no, and that should be the first guiding principle for businesses,” said Buch.
Build regulator supportive regulations: The primary responsibility of the regulator is to ensure that investors make informed decisions. “If your business model is woven around a black box, which is not open to sunlight or not capable of being audited or validated, it cannot be permitted,” she said. According to Buch, to avoid problems and crackdown from the regulator, the fintech companies' business model should facilitate financial inclusion
Customers should be able to exit as easily as they entered: The idea of building barriers to exit for customers is unlikely to find favour with us. "Customers should be able to exit your ecosystem as easily as they entered it," she told innovators and investors.
“We don’t want ‘Abhimayus’ in the market. Ek baar bakra aa gaya toh usko bahar jaane nahin denge,” said Buch.
Reduce structural vulnerability: Structural vulnerability at each stage when money is passed through many channels can be eliminated, and hence the possibility of wrongdoing can also be eliminated through technology, added Buch. “Posting collateral is now done through pledge and repledge rather than shares actually moving, with that, we also have the ASBA model for IPO application process and are looking to introduce it in the secondary market”, she said while citing examples of technology innovations by SEBI.
Application Supported by Blocked Amount or ASBA is an IPO application process developed by SEBI. It is an application containing an authorisation to block the application money in the bank account for subscribing to an IPO issue.