swaminathan j : safe banking practices – protecting the young speech by mr swaminathan j, deputy governor of the reserve bank of india, at the global money week 2024, paris, 18 march 2024. * * * mr. yoshiki takeuchi, deputy secretary general, oecd, ms. mairead mcguiness, european commissioner for financial services, ms. magda bianco, chair of oecd infe and g20 gpfi, mr. connor graham, youth representative from enactus, assembled regulators from across the world, ladies and gentlemen. a very warm good morning to all of you. it gives me immense pleasure to speak to you today on a highly relevant topic - safe banking practices and protecting the young. as we are all aware, the covid - 19 pandemic accelerated digitalisation in financial services, prompting a swift transition to online mode by service providers and customers. accompanying this surge in digitalisation was also the proliferation of fintech platforms. often operating outside the regulatory envelope and unconstrained by legacy systems that typically encumber traditional banks, fintech companies exhibit remarkable agility and adaptability in offering customised financial products. these developments are indeed welcome. however, while they offer immense benefits such as accessibility and hyper - personalization, they also heighten the risk of misuse and fraud. they can expose consumers to risk of cyberattacks, data breaches, and often times, some financial harm. consumers may struggle to resolve disputes or obtain compensation due to lack of transparency on the part of such players. these new risks must be addressed through robust regulatory frameworks, enhanced cybersecurity measures, and increased consumer awareness initiatives. in this context, i would like to share some of the approaches adopted in india through regulation, supervision and most importantly, enhanced consumer awareness. regulation and supervision in india, regulated entities are required1 to implement multi - factor authentication for all payments through electronic modes and fund transfers, except for some explicitly exempted small value transactions. at least one of the authentication methodologies should be generally dynamic or non - replicable such as one - time password, mobile device binding, biometric, etc. regulated entities are required to put in place security controls for internet banking, mobile payments application and card payments security. regulated entities are also required to conduct risk assessment of the safety of digital payment products as well as suitability and appropriateness of the same vis - a - vis

it has created hold regular competitive events like the hackathon to provide a channel for the fintech and start - up sector to showcase innovations. non - disruptive innovation 7. no regulator has the luxury of letting innovation disrupt the financial system in the hope that market might reach its own equilibrium eventually. for instance, we cannot afford to let loose defi technologies on the financial institutions with virtually no understanding of how a bank - less system would operate. apart from the unacceptable financial stability risks, this would amount to a regulator working towards its own irrelevance. it is necessary that a regulator controls the manner and pace of absorption of new technology. allowing disruptive technology without clarity on whether the alternative is even feasible, let alone desirable, would be an unacceptable gamble. a key element for smooth absorption of new technology is to ensure a level playing field. if offering credit cards requires a banking ( or similar ) licence, allowing a non - licensed entity to offer them would amount to undermining the banking system, as it would be placed at a competitive disadvantage. similarly, digital payments are essentially a banking service in the sense that they involve movement of funds from one deposit account to another. deposit accounts are a necessity, technology merely a tool ; deposit accounts can be used to make payments even without technology, but not the other way round. facilitating a non - bank to use its technology to move bank deposits would amount to creating a competitive edge for the non - bank. it may be argued that nonbanks could avoid use of bank deposits by maintaining deposit like funds, say, wallets. then non - banks would be deposit taking entities, that is, they would be effectively banks which would require a banking licence. a less disruptive and more efficient mechanism is to facilitate banks to collaborate ( or acquire ) the new technology. banks could also outsource or internalise the new technology. would it disincentivise innovation? not likely, if the non - bank technology is appropriately priced. 8. this brings us to the key issue of regulatory arbitrage. if we want to avoid the inefficiencies caused by differential regulations for similar activities, a non - bank undertaking banking functions, needs to be licensed and regulated like a bank. without the license, it should not be allowed to undertake banking activities. this for example, is what rbi did recently when it clarified that ppis ( prepaid payment instruments ) cannot be funded out of credit lines, because it enabled an