fintech: RBI: Financial system must be protected against fintech risk
The central bank also continued to depreciate cryptocurrencies, saying that they weaken exchange rate controls and financial regulations.
“BigTechs can scale up rapidly and pose a risk to financial stability, which can arise from increased disintermediation of established institutions,” the central bank noted in its Financial Stability Report (FSR) published Thursday. “In addition, complex intertwined operational links between BigTech firms and financial institutions can lead to concentration and contagion risks and problems related to potentially anti-competitive behavior.”
The regulator added that the emergence of fintech has exposed the banking system to new risks that extend beyond supervisory issues and cross topics such as data privacy, cyber security, consumer protection, competition and compliance with anti-money laundering policies.
“Regulators and regulators face a challenging balance between innovation friendliness and managing risks for financial stability, which requires more involvement from stakeholders such as regulators, the fintech industry and academia,” the report said.
RBI Guv warns against crypto
Central bank data showed that the Indian fintech industry, among the fastest growing in the world, was valued at $ 50-60 billion by 2020.
It is estimated to reach $ 150 billion in size by 2025. India has the highest fintech adoption rate globally, at 87%, and received $ 8.53 billion in funding in 278 agreements during 2021-22.
Separately, the Banking Supervision Authority once again warned against the spread of virtual currencies, calling the instruments a “danger”. “Cryptocurrencies are a clear danger,” RBI Governor Shaktikanta Das noted in the preface to the report. “Anything that derives value based on make believe, without any underlying, is just speculation under a sophisticated name.”
Das said that while technology has supported expanding the reach of the financial sector across social hierarchy and geography, the benefits must be fully exploited while being protected from the potential to disrupt financial stability.
The monetary authority noted that cryptocurrencies are not currencies as they do not have an issuer; they are not a debt instrument or a financial asset, and they have no intrinsic value. It added that history has shown that private currencies result in instability over time and “dollarization” of the system as they create parallel currency systems, which can undermine supreme control over money supply, interest rates and macroeconomic stability.
“For developing economies, cryptocurrencies can erode capital account regulation, which can weaken exchange rate management,” the regulator noted in the report. “Although the degree of cryptocurrency has so far appeared to be limited, growth circumvents exchange rates and capital controls and limits the efficiency of the transfer of domestic monetary policy, posing a threat to monetary sovereignty. payment systems and adversely affect real economic activity. ”
The regulator also added that while central banks around the world are working with pilots to introduce central bank-backed digital currencies (CBDCs), a shift away from bank deposits to such instruments could potentially reduce credit availability or increase credit costs. “A majority of central banks in the BIS survey are uncertain about imposing limits on CBDC transactions or balances to counter disintermediation risk,” it said.
