' hands - off'approach that advocates allowing the sector to operate freely and develop without any regulatory intervention. while this allows for harnessing benefits of innovation, it risks the possibility of failing to protect the financial system and customers from adverse outcomes. 19. at the other end of the spectrum there is the'status - quo'approach that aims to maintain the existing framework without any relaxation to cater for new developments. under this approach, fintech product and services are regulated in the same way as the traditional financial product or service. from the perspective of controlling risks, it may appear to be the best approach as it applies tried and tested regulations. however, benefits of innovation may be lost. 3 / 6 bis - central bankers'speeches 20. in india, the rbi has endeavoured to find a middle ground trying to balance between the innovation brought by fintech while addressing the unique risks they introduce. 21. the nbfc – account aggregator framework of 2016, nbfc - peer to peer lending guidelines of 2017 and recent digital lending guidelines are examples of adaptive regulation intended to address emerging risks. 22. p2p regulations were introduced in the early stages allowing india to avoid failures witnessed in other jurisdiction, while at the same time enabling an innovative mode of credit intermediation. similarly, guidelines on account aggregator ( aa ) facilitate innovations related to open banking while building a robust data privacy regime. last year's digital lending guidelines was a reiteration of two well established principles, namely, ( i ) lending business is regulated activity and ( ii ) onus of ensuring compliance in an outsourcing arrangement lies on the regulated entity. 23. the rbi introduced the regulatory sandbox framework in 2019 for live testing of innovative products or services in a controlled environment. the success stories emanating from the regulatory sandbox initiatives include the recently launched upi123pay which can enable more than 400 million feature phone mobile subscribers to make upi payments even without an internet connection. further, to extract the full benefit of regulatory sandbox, a framework for inter - operable regulatory sandbox ( iors ) was also unveiled last year. this framework is to facilitate testing of innovative products / services falling within the regulatory ambit of more than one financial sector regulators. 24. in 2022, as part of its efforts to promote innovation in the financial sector, the rbi set up of the reserve bank innovation hub ( rbih ). within the rbi a new fintech department was established in 202

automated fintech business models for decision making take care of requirement of fairness through additional procedures, controls, and safeguards both in the development and deployment of models and also in the final decision making. 12. risk of unreliability or vulnerability of technology is not limited to fintechs. however, since their business is heavily dependent upon automation, their vulnerability is also greater. 2 / 6 bis - central bankers'speeches 13. fintechs need to be conscious of customer protection. miss - selling, fraud, or misconduct by fintechs may harm the very consumers they intended to serve. careful management of this risk is significant for the sustainable development of the fintech sector. a loss of consumer trust may put an unrepairable dent on the sectors growth story. so, while regulators are always worried about customer protection, fintechs should even be more aware, vigilant, and proactive in ensuring that the bedrock of their business remains protected. financial inclusion 14. a financial sector that does not prioritise financial inclusion cannot distribute the benefits of economic growth to all levels of society1. financial inclusion entails providing access to avenues of savings and investments, and credit at an affordable cost. it benefits the economy and society as it is accompanied by increased economic growth and reduction in inequality. in countries that have large numbers of people who are " unbanked, " financial innovation could help enhance financial inclusion, especially if they are paired with digital identifications systems. 15. with the use of alternative data, end - to - end digitalisation coupled with other technology interventions, fintech can bridge the credit gap that exists due to various reasons such as absence of credit scores, cumbersome documentation, manual processes, etc. 16. the reserve bank innovation hub ( rbih ) in association with rbi is piloting an endto - end digitalisation of kisan credit card ( kcc ) lending. the project envisages automation of various processes within banks and integration of their systems with the service providers which will make granting of kcc loans more efficient and economical. regulatory approaches 17. any approach to regulate the fintech sector will invariably be informed by five fundamental objectives - ( i ) financial stability, ( ii ) consumer protection, ( iii ) integrity of financial system, ( iv ) competition and ( v ) orderly development of sector concerned. 18. under these overarching objectives, there are various approaches to regulation. at one end of the spectrum, there is a