Why RBI is increasing scrutiny of fintech firms
What's the story
The Reserve Bank of India (RBI) is stepping up its scrutiny of fintech companies by employing analysts to review customer data and holding regular meetings with executives.
The Economic Times reported that the action comes after routine inspections over the past year uncovered that several fintech firms were not sufficiently following customer due diligence.
KYC issues
RBI is concerned about customer identification process via Aadhaar
RBI is especially concerned about the digital customer identification process used by fintech firms, which depends on Aadhaar and a connected mobile number for verification.
While this method is quicker and more cost-effective, it is also susceptible to manipulation, leading to potential fraud and money laundering issues.
RBI does not prohibit this method but has requested that digitally verified accounts be labeled as 'high risk' until physical or video-call based identification is completed.
Scrutiny process
Random sampling to ensure authenticity of accounts
To enhance its supervision, RBI officials have been randomly selecting samples from fintech firms' user bases during frequent onsite inspections to verify authenticity.
The RBI's meetings with fintechs will also be more frequent.
In addition, the RBI is investing in improved technology to identify regulatory violations and employing analysts to examine millions of customers' personal data held by fintech firms.