The proposed guidelines from the very outset had raised question marks. The industry view seemed to be that they were too much, too early, especially in an industry that was in an experimentation stage. Players were working with several business models to figure the right configuration for getting a toehold in the market. Kapronasia in its recently published report Fintech Regulation in Asia had warned regulators of not placing the cart before the horse in this still evolving domain.
In order for the SEBI to play a constructive role in the fintech ecosystem it needs to be cognizant of the following:
- All parts of the fintech ecosystem are in a state of flux. Some sub-markets such as investments (read: online brokerages) and insurance (read: ULIPs for the SEBI to look at) are at a certain state of maturity, however the pre-eminent sub-markets such as investment management and advisory including robo-advisors, financial planning platforms, peer to peer lending and crowdfunding platforms are still evolving. There is no point in spending inordinate energy in regulating the latter. These markets will eventually evolve and will likely ‘ask’ to be regulated.
- Regulators need to understand that ‘regulation’ is not their only role. Their mandate is to create enabling ecosystems that further transparency and protection of all stakeholders. The SEBI might do well take a cue from the RBI which has now distanced itself from regulating Fintech and is looking at enabling structures for the industry. Funding pool, creation of a task force etc. are all steps in that direction.
- The fintech ecosystem is no longer lending itself to clear cut products that sit easily under the lens of a single regulator. Crowd-funding is a case in point. If regulation is to be successful, in conceptualization and implementation, the need for a nodal agency can not be over-emphasized. Regulators in India will do well to expedite this agency formation before establishing stipulations for the fintech ecosystem.
There are opportunities ahead, but as always, challenges as well.
For more information on regulation not just in India, but across Asia in our Fintech Regulation in Asia report.