Indian fintechs should attempt to organise themselves under a self-regulatory organisation (SRO) model to monitor misconduct of entities and protect consumer rights and high governance standards, Reserve Bank of India deputy governor MK Jain said in a speech on Friday.
“Role of such an SRO can include setting the standards for conduct as well as acting as a bridge between the sector and regulators,” DG Jain said at the International Research Conference on FinTechs in Ahmedabad.
Fintechs should design robust customer-centric products that avoid company induced losses to customers, such as those from cybersecurity breaches, technical glitches and frauds. They should also ensure customer suitability and appropriateness and refrain from mis-selling or imprudent lending, DG Jain said.
“As far as governance is concerned, the importance of adopting and adhering to good governance cannot be overemphasised. Mis-governance is at the root cause of several failures…,” Jain said, adding that the board of fintechs must be empowered to assert its role as the balancer of conflicting interests.
The board must also have adequate experience and independence.
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DG Jain flagged risk of fintechs processing unsecured loans through machine learning models.
“…effectiveness of these models for delinquency has not been fully established, especially during an economic downturn. Any significant failure of these models will not only be limited to new entrants but will also impact regulated entities with exposure to them,”he said.