Delhi High Court Wednesday asked the Centre, RBI, SEBI, IRDAI and National Payments Corporation of India (NPCI) to respond to a PIL seeking a detailed legal framework for regulating operations of techfin companies such as Facebook, Google and Amazon in India's financial sector space. According to the petition filed by an economist, techfin entities are technology, telecommunications or e-commerce companies which have entered the financial sector to provide services and need to be regulated.
A bench of Chief Justice D N Patel and Justice Prateek Jalan issued notice to the ministries of finance and law as also Reserve Bank of India (RBI), NPCI, Insurance Regulatory and Development Authority of India (IRDAI), Securities and Exchange Board of India (SEBI) and the Pension Fund Regulatory and Development Authority (PFRDA) seeking their stand on the plea by Resmi P Bhaskaran. Bhaskaran, in her plea filed through advocate Deepak Prakash, has alleged that the "lackadaisical approach" of Indian financial regulators permits unregulated operation of techfin firms and claims that this could adversely affect the financial stability of the country. The petition has claimed that unregulated operation of techfin entities in the financial sector can lead to financial crisis and leakage of personal data.
It has claimed that these companies have a "deep well of data and an established international network" which gives them an advantage in the financial sector. However, they are "neither subject to client/ customer/investor protection rules nor regulatory measures that ensure functioning of financial markets and prevent build-up of systemic risk", the petition has contended. It has further said that due to "the absence of dedicated regulations", the techfins have entered the financial domain by partnering with existing entities and compete with regulated financial institutions without having to comply with the same requirements.
These entities initially begin relationships with customers in a non-financial service setting, collect massive amounts of data from such relationships and then use it to serve as a conduit for access to financial services, it said. Therefore, by functioning as a conduit between customers and financial institutions, such entities are not subject to the regulations that the financial institutions have to follow and they also get access to financial data of the users, the petition has said. It has sought immediate framing of regulations to prevent techfin companies from entering into the financial sector or providing financial services through any mode without prior registration or approval from regulators.
It has also sought framing of regulations to ensure data collected while providing financial services is not monetised or used for any other purpose by such companies.