SEBI Constitutes CFRT Committee To Study Impact Of Fintech On Financial Markets

The Securities and Exchange Board of India (SEBI) has formed a Committee on Financial and Regulatory Technologies (CFRT) to examine ongoing and medium-term trends related to fintech in the securities and financial markets worldwide. The 10-member CERT committee will be headed by T.V. Mohandas Pai. The committee will advise the markets regulator on opportunities and challenges for new solutions and its impact on the country’s securities market.

The committee includes Prakash Baliarsingh, Chief General Manager of RBI; A.P. Hota, Managing Director and CEO of NPCI; Diana Layfield, Vice President, Product Management Google, London; Vijay Shekhar Sharma, founder and CEO of Paytm; and Anup Bagchi, Executive Director, ICICI Bank, among others.

SEBI noted that the “application of technology in financial markets is changing the way financial markets traditionally have functioned. Technology is affecting financial markets through various channels be it technology driven financial market platforms for fundraising (such as peer-to-peer lending, crowd funding), online access to investment products (e-KYC, online mart investment products, Robo-advisory and online portfolio management), post-trade market for securities (through new database technologies such as blockchain and other distributed ledger technology), product and process innovation (such as algorithmic trading, algorithmic driven synthetic investment products, virtual currencies, digital payment gateways), etc.”

Thus, regulators are faced with the challenges as well as opportunities to evolve their functioning more effectively through the adoption of new technology solutions. It is in this context that the CFRT committee will help the SEBI deal with relevant risks and challenges.

The Committee would examine, deliberate and advise the SEBI on an ongoing basis on the following issues:

• Recent and medium term trends (within next 5 years) in fintech developments in securities market worldwide.
• Opportunities and challenges from new fintech solutions and its impact on Indian Securities Market.
• Fintech solutions for further widening and deepening of Indian securities market.
• Approach and framework for the regulatory sandbox in Indian market conditions to facilitate the adoption of fintech and promote financial innovations.
• Preparing the Indian securities market and regulatory framework to adapt to new fintech solutions while promoting market integrity, market development, consumer protection and managing change, business models and market disruptions.
• Assessing technological solutions for SEBI regulatory functions viz. information management and data mining, risk management including cyber security, intermediary supervision, consumer protection, etc., through the application of new technological solutions like applying distributed ledger technology, Big Data, data analytics, Artificial Intelligence, machine learning etc.
• Technology capacity building by Indian securities market in general and SEBI in particular.

Notably, the development comes when there is a lot of discussion on whether the Indian government will move towards legalising cryptocurrency or not. Earlier reports had suggested that a committee of finance ministry officials, IT ministry officials, NITI Aayog and Reserve Bank officials, may be inching closer to legalising virtual currencies in India. Though no concrete plans have yet been revealed, a recent report suggests that the inter-disciplinary committee chaired by Special Secretary in Department of Economic Affairs has submitted its report to the Finance Minister Arun Jaitley.

The Board’s interest in the fintech market is understandable. Although relatively young in India, the fintech market is undergoing a phase of rapid growth and is forecasted to cross $2.4 Bn by 2020, as per reports by KPMG India and NASSCOM. India is currently home to more than 500 fintech startups. Amidst the rising class of digital wallets, UPI, mPoS, one sector that is slowly and silently rearing its head is P2P lending (peer-to-peer lending). As per Inc42 Datalabs report, the fintech sector topped the funding charts in H1 2017 – with about $2 Bn funding flowing in the space. No wonder then that the SEBI wants to keep in sync with the space which could impact the financial markets in a significant way in the coming days.