Sebi Chief offers a checklist on how Fintech companies can prevent hacking by the regulator

“Technology will transform the financial services space. It will reduce the cost of delivery, I love the fintech world,” Madhabi Puri Buch, chairman of the Securities and Exchange Board of India (SEBI), said in his speech at the Global Fintech Fest.

Despite being a latecomer to the startup ecosystem in the past, SEBI is now planning to reduce regulatory gaps, Buch added while explaining the initiatives of SEBI with the inclusion of technology.

“In construction, there will always be a regulatory gap. If startups are building something completely new, it hasn’t even crossed the minds of those in the regulatory body. But when we finally emerge, what should fintech innovators keep in mind to avoid a breakdown?” Buch said.

RBI Governor Shaktikanta Das, while addressing the summit on Tuesday, also emphasized the same and said that the intention of the central bank is not to punish or stifle anyone, but to ensure that everyone follows traffic rules.

The statement assumes significance in light of recent incidents where a few borrowers through these apps were forced to commit suicide, as well as the incident last week where a young pregnant woman was run over by Mahindra Finance recovery agents in Bihar, who had financed her father’s tractor.

Here are set of principles that should guide any entrepreneur in the fintech space, as mentioned by the SEBI chief:

Don’t rely on anonymity, rely on data: “Anonymity in the financial world is an absolute no-no, and it should be the first guiding principle for businesses,” Buch said.

Build regulator supporting regulations: The regulator’s primary responsibility is to ensure that investors make informed decisions. “If your business model is woven around a black box, which is not open to sunlight or cannot be audited or validated, it cannot be allowed,” she said. According to Buch, the fintech companies’ business model should facilitate financial inclusion to avoid problems and penalties from the regulator.

Customers should be able to exit as easily as they entered: The idea of ​​building exit barriers for customers is unlikely to find favor with us. “Customers should be able to exit your ecosystem as easily as they entered it,” she told innovators and investors.

“We don’t want ‘Abhimayus’ in the market. Ek baar bakra aa gaya toh usko bahar jaane nahin denge,” said Buch.

Reduce structural vulnerability: Structural vulnerability at each stage when money is sent through many channels can be eliminated, thus the possibility of wrongdoing can also be eliminated through technology, Buch added. “Security is now done through pledge and pledge instead of shares actually moving, with that we also have the ASBA model for the IPO application process and want to introduce it in the secondary market”, she said while citing examples of technology innovations by SEBI.

Application Supported by Blocked Amount or ASBA is an IPO application process developed by SEBI. It is an application that contains an authorization to block the application money in the bank account to subscribe to an initial public offering.