##ing from this synergistic collaboration between the regulated entities and fintechs with huge future potential. benefits from fintech 1 / 6 bis - central bankers'speeches 6. technology has reduced entry barriers and allowed fintechs to enter the financial services. more importantly, it has allowed the unbundling of financial services in a manner that is economically viable even at a lower scale of operations. in turn, consumers have benefited by better customer experience and convenience. payment sector innovations in india is a typical example. 7. one of the key value propositions that fintechs offered was providing the same financial services as regulated entities but at a lower cost. fintech disruption in the indian brokerage industry is a shining example of this. 8. large technology companies, or big techs as they are popularly called, such as alphabet, meta, amazon, etc. have also expanded into financial services. these companies leverage the data from their large existing user base coupled with network effects to provide contextualised or embedded financial products along with nonfinancial products. in many jurisdictions, in addition to payment systems, big techs have successfully expanded into credit scoring and lending. risks from fintech 9. irrespective of the type of player undertaking financial business or the type of technology underlying it, it is prone to a few fundamental sets of risks. a. for regulated entities or new entrants, depending on the business model, they face legal, reputational, governance, and operational risks in addition to the usual credit, market, and liquidity risks. b. from customers'perspective, key risks include mis - selling, discrimination, data privacy and security. c. from a regulator's perspective, there are risks associated with financial stability, market integrity and customer protection. 10. we monitor and calibrate our regulatory and supervisory response across these risk areas. however, new entrants and new technologies can further aggravate these risks. for example, fintechs operating on lending side have spurred the availability of unsecured loans, globally. such loans are often driven by machine learning models. however, effectiveness of these models for delinquency has not been fully established, especially during an economic downturn. any significant failure of these models will not only be limited to new entrants but will also impact regulated entities with exposure to them. 11. use of models also brings the question of fair treatment in the extension of credit. it is necessary that highly

and 124 in “ resolving efficiency ”. not an insignificant part of the blame for this predicament usually is laid at the door of the complexity and opacity of the regulatory framework. without admitting the truth of the accusation or culpability as a regulator, i have no hesitation in stating that both the regulatory framework and its administration require improvement. at the same time, let me argue that this improvement is not possible at the initiative of the authors and administrators of regulations alone ; it requires active contributions from those for whom the regulations are framed. this is where you have an important role to play. 5. what is the foundation of regulations? in a free market economy, regulations are basically aimed or should be aimed at addressing various reasons for market failure : existence of monopoly power, externalities, information asymmetry etc. put another way, in a kind of “ bar stool ” manner, regulations are aimed at addressing the divergence between individual and social incentives. there are many parables that illustrate this point ; let me do this with the so called “ tragedy of commons ”. suppose residents of a village use a parcel of land – called common in uk – to graze their animals. if one villager grazes an additional animal, it is beneficial for her but detrimental for villagers as a group. if several villagers do this, the common will be depleted and ultimately destroyed. societies down the ages have resolved this problem in myriad ways – mostly through standards of normative behaviour rather than regimes of regulations and their enforcement. in a modern economy that is large, complex and organically interrelated, such problems require elaborate and explicit rules and regulations and their administration and enforcement. 6. regulations thus are supposed to modify behaviour of those covered by the regulation and ensure that they behave in a socially desirable way. but whether the regulations will have to be in the nature of a nudge or a shove depends upon how the regulated entities respond to. when the regulations are simple and the regulated entities comply with the regulations in letter and spirit so that the objective of the regulator is achieved, it is not necessary for regulations to be complex and detailed, which makes both administration and compliance difficult. in addition, several socially and economically useful activities may also not be undertaken in the face of such elaborate regulatory regimen. 7. let me give an example from my own professional field. as you are aware, we have restrictions on capital account transactions. this is motivated by the objective of macroeconomic stability. in the preference