For quite some time, "FinTech" has been the buzzword in India's business and entrepreneurial sectors. India is home to various FinTech behemoths that provide various products and services. The FinTech business has been gradually growing and is expected to see exceptional development in the future decade. This article gives an outline of some of the important rules and regulations related to FinTech firms in India, as well as a brief introduction to India's FinTech sector.

Introduction to FinTech Sector

FinTech refers to technology-driven start-ups that challenge existing financial players and established banking procedures. Even though there is no single definition that applies to all instances of FinTech, the Bureau of Indian Standards (BIS) defined it as "technologically enabled financial innovation that may result in new business structures, applications, procedures, or products with an associated materialistic effect on financial markets and institutions and the provision of financial services." In other terms, FinTech is the collaboration of financial institutions with cutting-edge technology to establish, improve, and automate banking and finance supply.

Laws and Regulations Relating to FinTech

As technology advances, so does the duty to govern the goods and services that FinTech laws provide. The primary regulatory agencies in charge of this sector are the Reserve Bank of India (RBI), Insurance Regulatory & Development Authority of India, the Securities Exchange Board of India (SEBI), the Ministry of Corporate Affairs, and the Ministry of Electronics and Information Technology (MEITY). The proper regulatory agency in charge of its goods and services would govern a FinTech firm. For example, the RBI regulates FinTech enterprises that deal with account aggregation, peer-to-peer credit, cryptocurrencies, payments, etc.

In India, the FinTech regulatory structure is significantly fragmented, with no body of rules or norms governing all FinTech services. As a result, this industry is tough to control since there is no common set of FinTech laws. The sections that follow go through some of the important rules that apply to FinTech enterprises in India.

The Payment & Settlement Systems Act of 2007

Payments in India is governed by the Payments & Settlements Systems (PSS) Act of 2007. According to the PSS Act, a "payment system" cannot be developed or operated without the prior authorization of the RBI. A "payment system," according to the PSS Act, is "a system that allows payment to be made from one person to another," but it expressly excludes a stock exchange. PPIs, money transfer services, smart card operating systems, and debit and credit card operating systems are all payment methods. Before a payment system can begin or be put into operation, the RBI must approve it. As a result, compliance with this FinTech Law is required for FinTech businesses to function.

The Companies Act of 2013

FinTech companies, like any other business in India, must register under the Companies Act 2013 and follow all of the Act's laws and regulations. The Act incorporates and authorises FinTech companies like Paytm, Bharat Pe, and others.

The Consumer Protection Act of 2019

For the Consumer Protection Act, companies in the FinTech business are considered service providers. Unfair commercial practises are defined as the "publication of consumer's personal information submitted in confidence unless required by law or in the public interest," according to Section 2(47)(ix) of the Act. Comparable to this are the Information Technology Rules, 2011, which restrict the sharing of a consumer's personal information without prior authorisation unless required by law. FinTech companies must follow this rule since they handle sensitive personal data belonging to their customers.

The Prevention Money Laundering Act 2002

The Prevention of Money Laundering Act & the Prevention of Money Laundering Rules 2005, also the KYC Master Directions, are the primary rules that provide anti-money laundering standards and operational guidelines for enterprises that offer financial services in the country. The rules mentioned above oblige banking institutions, financial institutions, and intermediaries to validate customer identification, keep records, and send information to the Financial Intelligence Unit - India in a certain format (FIU-IND).

The Information Technology Act of 2000

As FinTech platforms acquire and keep more user information, particularly behavioural and financial information about individuals, the need to preserve consumer privacy and data has grown. However, currently, India needs a dependable data privacy system. The two primary pieces of law governing personal data privacy are the Information Technology Act of 2000 (IT Act) and the Rules on IT (Reasonable Security Practices & Procedures & Sensitive Personal Data or Information).

FinTech companies must also observe the IT Act's rules. Businesses are liable for damages under Section 43A if they fail to take adequate security steps to protect their customers' sensitive personal data. In addition, section 72A imposes penalties for disclosing information in violation of a legitimate contract. Individual personal data is critical to FinTech businesses. Therefore, following the mandatory data security rules is essential to prevent legal complications.

The Reserve Bank of India's Regulations

The Reserve Bank of India Act and a set of regulating guidelines and circulars are the primary regulatory mechanisms that apply to NBFCs. Certain FinTechs are regulated by the RBI, either directly through issuing NBFC licences to them or indirectly through regulating banks and NBFCs associated with FinTech. In order to be licenced by the RBI, the organisation must meet a number of criteria. Several digital lenders in India have received NBFC approval.

The Insurance Act

Insurance technology, or InsurTech, companies cooperate with a wide range of stakeholders to disrupt the insurance industry's value chain. Through their relationships with insurance companies, they have aided in the acceleration of application procedures as well as the automation of testing and claim processes. Some companies also act as online aggregators on occasion, allowing customers to compare the breadth of coverage, the term, the premium, and other relevant characteristics before making a decision. These web aggregators must be approved by the Insurance Regulatory Development Authority of India, the country's primary insurance sector regulator.

The Foreign Exchange Management Act

According to RBI rules published under the FEMA, numerous cross-border transaction services have been formed due to improvements in India's FinTech industry. Foreign currency transactions are governed by the Foreign Exchange Management Act of 1999 ("FEMA") and the rules and regulations promulgated under it. According to the RBI's rules established under the FEMA, Accredited Dealer Category II Entities, such as usurers, are permitted to provide foreign currency pre-paid cards in India to Indian citizens in compliance with the FEMA.

The PPI (Prepaid Payment Instruments) Master Directions also allow qualifying companies to issue PPIs for overseas transactions. Authorised dealer category I can supply semi-closed and open-system PPIs for FEMA-compliant, FEMA-compliant and payments of up to 10,000 per transaction and 50,000 per month acceptable current account transactions (including all the procurement of goods and services).

Role of the FinTech Industry

The role of the FinTech Industry is-

• Online financing options
• Advisory and assistance with wealth management
• Technological services based on insurance
• Industry of payment and remittance

Services Offered by The Industry
 

With the growth and development of the FinTech industry in the market, the demand for its services has also increased rapidly. Some of the services offered by the concerned industry are as follows-
 

Crowdfunding Grounds

Moreover, these platforms permit entrepreneurs and startup businesses to increase funds from all over the world, allowing them to bypass geographical boundaries and meet international markets and investors.

Payments via Mobile Devices

One of the most common applications of fintech is mobile payment applications and gateways. Furthermore, such programmes enable users to transact without visiting a bank. For example, companies such as Venmo and Interac allow clients to send and receive money by smartphone with low transaction costs.

Robo-Advisors

Robo-advisors are online investment management firms utilising algorithms to optimise user asset allocation and portfolio generation. Furthermore, they enable users of all ages to engage in low-cost investing activities with minimum human work.

Insuretech

Insurtech is the use of technology in the insurance sector, allowing organisations to deliver personalised insurance services and data security. Furthermore, through online claims filing and policy administration, insuretech helps to expedite the insurance process.

Regtech

Regtech (regulatory technology) is concerned with automating financial institutions' compliance operations. It also provides quick and cost-effective administration of massive volumes of data, such as transaction records and compliance papers like company tax filings.

Blockchain technology and Cryptocurrency

Blockchain technology is used to develop cryptocurrencies, which are promising new mediums of exchange that are more secure and superior than currency. In consequence, blockchains provide several opportunities to disrupt and transform traditional business structures.

Conclusion

We have reached a point where IT is no longer a specific business but an umbrella industry that encompasses all other sectors.

Most sectors are increasingly searching for technological solutions to decrease costs, improve productivity, and improve customer experience and convenience. Other areas, such as Edutech and Biotech, demonstrate how technology is transforming our business. Therefore, the above-mentioned FinTech laws are required to start a new FinTech company.

The Jurisdiction and Functions of The National Company Law Tribunal