RBI scrutinises NBFCs and fintech amid compliance failure revelations; here’s what it means
The scrutiny of fintech giants like Paytm and non-banking financial companies (NBFCs) such as JM Financial and IIFL by the Reserve Bank of India (RBI) points to various compliance issues, regulatory weaknesses, and governance concerns that plague the sector.
The regulator has found that several financial entities—banks, NBFCs, and fintech players—violated a number of compliance standards or regulations. The seemingly endless list includes breaches relating to know your customer (KYC) norms, money laundering, reporting frauds, digital lending guidelines, connected lending norms, data security, and privacy regulations, among others.
“Financial institutions must recognise the importance of the regulatory frameworks and the risks of compliance failures. RBI’s conduct is one of non-tolerance in the face of non-compliant behaviour, with the central bank slapping fines and penalties on defaulters,” says Sandeep Agrawal, Co-founder and Director of TeamLease Regtech, a compliance management software company.
“There is an urgent need to increase compliance sensitisation across local branches and regional offices. Companies need to implement and adopt the digitisation of internal processes that can monitor their activities,” Agrawal suggests.
This can be achieved through a top-down approach, says Nagaraj Krishnan, Managing Director of Aparajitha Corporate Services, another compliance services provider. “Banks can cultivate a culture where compliance is not seen as a burden but as a shared responsibility and a competitive advantage. It is through the collective efforts of senior management and staff that banks can uphold the highest standards of integrity and trust, safeguarding the interests of stakeholders and the financial ecosystem,” says Krishnan.
Experts suggest that the complexity of the regulatory ecosystem is such that there are thousands of obligations that an entity must comply with. Manual, ad-hoc systems have been causing delays, lapses, and defaults, with compliance teams failing to keep up with pending, ongoing, and upcoming compliances. “Financial institutions must incorporate technology and create a culture of compliance,” says Agrawal.
@anandadhikari
