with Inputs from:
On this weblog put up, we current our feedback to the Report of the Working Group on Digital Lending together with Lending by On-line Platforms and Cell Apps, November 2021 (the Report) in response to the decision for feedback from all stakeholders by the Reserve Financial institution of India (RBI). Our response is accessible right here.
We respect the Report’s multi-dimensional strategy in analyzing points and setting out suggestions, in addition to its emphasis on client safety. Our suggestions concentrate on creating a robust and uniform client safety regulation framework, whatever the sort or dimension of the digital lender. Our suggestions additionally current coverage options to complement supervision and enforcement of client safety within the nation, given the constraints of capability.
Our response outlines 4 particular suggestions, that are as follows:
- Exercise-based regulation might higher complement the targets of client safety. We suggest that the RBI outline ‘credit score’ in a way that features merchandise which give the functionalities of credit score. All such actions needs to be topic to uniform client safety regulation. This is able to eliminate the necessity to regulate completely different merchandise similar to BNPL and STCC otherwise, so far as client safety is worried. This follows from the rising consensus that activity-based regulation might higher meet the targets of client safety whereas prudential regulation might warrant entity-based regulation.
- Contemplate bringing Mortgage Service Suppliers (LSPs) within the fold of Enterprise Correspondent (BC) regulation. There look like important overlaps between the capabilities of BCs and LSPs. Subsequently, sustaining two separate laws for these two entities might danger creating each duplication and regulatory arbitrage. Given this, we suggest: (i) activity-based regulation of economic service suppliers (together with BC’s & LSPs) by defining “credit-related actions”. This may assist to forged a fair regulatory internet throughout completely different third events and be sure that they supply uniform client safeguards; (ii) bringing the regulation of LSPs throughout the fold of BC laws to not danger the creation of regulatory arbitrage and gaps in client safety; (iii) a light-touch risk-proportionate registration regime for third celebration suppliers (BCs & LSPs) that may be thought of along with self-regulation. This may assist deliver visibility to 3rd events, floor any dangers which may be emergent and supply the regulator with a possible pathway to entry the third-party supplier, straight, if want be; (iv) the appliance of the Company Monetary Companies Regulation (AFSR) to consumer-facing entities that take part in credit-related actions.
- Contemplate making a client monetary safety and enforcement physique and a unified grievance redress company. A monetary client safety physique would assist create a system for complete supervision and enforcement of client safety. Moreover, a unified redress company, unbiased of economic sector regulators and devoted to the operate of grievance redress, would additionally guarantee a complete client safety regime.
- Threat proportionate regulation will help strike a steadiness between the participation of recent entities within the ecosystem and stability issues. We suggest that the quantum and type of credit score enhancement, such because the First Loss Default Assure (FLDG), needs to be computed on the premise of the chance that the third celebration introduces. One criterion that is perhaps used for danger based mostly FLDG contains the function offered by the third celebration. Additional, we propose that the quantum and modality of credit score enhancement needs to be printed in a public register maintained by the physique accountable for enforcement of client safety. Lastly, expertise options needs to be mandated to make the algorithmic underwriting processes of LSPs much less opaque.
We additionally understand that prohibiting LSPs’ entry to CICs might impede monetary inclusion and the supply of appropriate credit score. Unauthorised entry to credit score data might be solved by the usage of Account Aggregators and different mechanisms that enable for the consented movement of knowledge. Apart from, if LSPs are regulated as per our suggestions, they’d even be topic to the identical requirements of knowledge safety as different regulated entities.
Lastly, we propose the usage of suitability assessments in push advertising to stop over-indebtedness, as an alternative of ex-post measures similar to prudential necessities.
Cite this merchandise:
Prasad, S., Stanley, S., Singh, A., Srinivas, M., R, S., Chugh, B., & George, D. (2022). Feedback to the Reserve Financial institution of India on the Report of the Working Group on Digital Lending together with Lending by On-line Platforms and Cell Apps dated 18 November 2021. Retrieved from Dvara Analysis.
Prasad, Srikara, et al. “Feedback to the Reserve Financial institution of India on the Report of the Working Group on Digital Lending together with Lending by On-line Platforms and Cell Apps dated 18 November 2021.” 2022. Dvara Analysis.
Prasad, Srikara, Sarah Stanley, Anubhutie Singh, Madhu Srinivas, Shreya R, Beni Chugh, and Deepti George. 2022. “Feedback to the Reserve Financial institution of India on the Report of the Working Group on Digital Lending together with Lending by On-line Platforms and Cell Apps dated 18 November 2021.” Dvara Analysis.