Mumbai, Sept. 10 -- RBI Governor Sanjay Malhotra on Thursday asked the fledgling fintech ecosystem not to treat data as a business asset but as a "fiduciary responsibility" to build trust.
Addressing the Global Fintech Fest here, Malhotra also cautioned against using gaps between regulatory categories to scale up and then seek forgiveness.
The comments from the central bank governor come amid increasing interest among the fintech ecosystem that places a lot of premium on data, increasing the ability of a business to grow, for which many also call "data as the new oil".
"Treat data as a fiduciary responsibility, not a business asset," Malhotra said, adding that every fintech holds personal data of real people and the same should be treated the way a trustee treats assets held for a beneficiary.
Data has to be collected with a clear purpose, used strictly within the consent for which it is shared, and protected as though it is the fintech's own, the governor said.
"Where a firm treats customer data as a monetisable asset first and a responsibility second, trust erodes and once it does, it does not return easily," he warned.
On the issue of business structuring to exploit regulatory gaps, Malhotra reminded of tools like sandbox and pilot mechanisms and added that a firm that engages transparently not only earns regulatory goodwill but also gains faster, more durable pathways to scale.
"I would gently caution against a mindset of structuring a business around the gaps between regulatory categories, or of scaling first and seeking clarity or forgiveness later," the career bureaucrat-turned-central banker said.
Rules eventually catch up with a firm, which seeks to outrun them, leading to a much higher cost being paid by the entity itself and also by way of a dent in trust of customers it serves.
Malhotra also flagged that aspect of being diligent on investments in risks such as operational resilience, business continuity, and cybersecurity by firms that scale up in their size.
"As a firm's payment volumes, lending book, or user base grows to a point where its disruption could meaningfully affect the financial system, that firm acquires a responsibility that goes beyond its balance sheet or its shareholders. I would describe this as the obligation to be not just 'too big to fail' but 'too significant to be careless'," he explained.
Fintechs are outside the ambit of prudential regulation because regulation should not be a burden on early-stage innovation, Malhotra said.
There are also risks emanating from artificial intelligence adoption, he said, adding that issues such as opacity, bias and exclusion, concentration and herding, cybersecurity, data privacy and security, and erosion of human judgement must be mitigated. Malhotra also announced the Unified Fintech Forum as the second self-regulatory organisation for the fintech sector, announcing that the RBI has given it all the necessary go-ahead.
Published by HT Digital Content Services with permission from Millennium Post.