Context:
In a first-of-its-kind move, the Fintech Association for Consumer Empowerment (FACE) has introduced a comprehensive Code of Conduct for regulatory technology (regtech) firms in India. This development aims to instill greater accountability, transparency, and alignment with regulatory expectations in the rapidly evolving fintech ecosystem.
What is Regulatory Technology (RegTech)?
RegTech, short for Regulatory Technology, refers to the use of technology to help businesses comply with regulations more efficiently and effectively, especially in highly regulated sectors like finance, insurance, healthcare, and legal services.
Definition
RegTech is the application of AI, machine learning, big data, cloud computing, and blockchain to automate and streamline regulatory compliance processes. It enables real-time monitoring, reporting, and risk management in a cost-effective manner.
Key Features of RegTech
- Automation of compliance tasks (e.g., KYC, AML checks)
- Real-time monitoring of transactions and activities
- Data analytics for risk profiling and regulatory reporting
- Audit trails and secure records for regulatory authorities
- Adaptive systems that evolve with regulatory changes
Key Highlights of the Code:
Mandatory Regulator Cooperation
- RegTech firms must fully cooperate with regulators during inspections.
- Provide access to:
- IT systems
- Data and documents
- Information from third-party vendors
Six-Month Implementation Timeline
- FACE member firms must fully adopt the code within 6 months.
Scope of the Code
Covers multiple policy areas:
- Regulatory compliance & engagement
- Data privacy & cybersecurity
- Responsible tech innovation
- Employee conduct & training
- Third-party audits & system testing
- Grievance redressal mechanisms
Data Security & User Rights
- Encrypt sensitive data and enforce access controls
- Conduct regular vulnerability audits
- Adhere to DPDP Act and sectoral data regulations
- Implement clear user consent and data management protocols
Third-Party Due Diligence
- Continuous oversight of business partners
- Mandatory systems for reporting:
- Security breaches
- System failures
- Data leaks
Grievance Redressal
- Maintain accessible complaint channels for:
- Customers
- Employees
