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OPINION: As the entire financial services industry is fast evolving, equally agile should be the financial regulators

Banking is one of the oldest commercial and trust-based activities that has existed through the ages. India has had its form of banking for many centuries as evidenced by our writings. Insurance as a sector is mentioned in the writings of Manu (Manusmrithi), Yajnavalkya (Dharmasastra) and Kautilya (Arthasastra). The writings describe pooling resources that can be redistributed in times of calamity such as fire, floods, epidemics, and famine. Ancient Indian history has also preserved the concept of insurance in the form of maritime trade loans and contracts of carriage. The Indian financial sector has endured socio-economic shifts, ideological battles and policy upheavals. Fortunately, the need for a safer and prudential aspect of financing remains high.

India right now

In the past 3 decades alone, we have seen various forms of tech adoption in the Indian financial sector. Currently, India’s population is made up of the millennial and Gen-Z consumers and regardless of whether they are located in urban centers or semi-urban or rural areas, their daily lives revolve around their smartphones and devices. As the entire financial services industry (including banking, non-banking financial corporations (NBFCs), digital lenders, insurance, wealth and asset management, pension funds, fintechs) evolves rapidly with newer offerings to serve this customer base, equally agile and proactive financial supervisors.

What could be the coming year?

Financial regulators would push for a stronger balance sheet of entities they oversee. This could mean more regulatory oversight of weaker entities, more stress-test dashboards, pushed mergers and acquisitions (M&A) and the need for financial players to raise additional capital.
Consumer protection is crucial. But the ability to balance that principle with the speed of digital innovation requires much faster adoption by financial regulators of their own digital capabilities and tools. Even in cases where consumer greed is the problem, blaming industry players can be avoided.
Financial regulators will contribute ideas to make product communication simple. This can reduce the heartburn associated with financiers flaunting their complicated jargons and obscure and repetitive paperwork.
All financial regulators that use a Unified Data format (say a standard like XBRL) can enable faster and preventive insight into systemic problems. When they can trust that the data has not been compromised, in the journey from transaction system to reporting, they can focus on the data itself for faster decisions.
Regulators have always had to get used to the newer waves of technological shifts and align their regulations with market mechanisms. Some of our financial regulators are far ahead of their peers in understanding digital finance. Hopefully the rest will soon catch up with the learning curve.
Our financial services are based on licenses. Reassessing each of these licenses from the perspective of utility, impact, and consumer needs can bury some of the legacy baggage we meaninglessly carry around.
Lateral hires of private sector talent for regulatory policy development, policy activities and regulatory oversight can be a new addition to bring in additional knowledge and increase market engagement.
Regulators will become stricter on any violations. After all, financial business is all about consumer confidence.
Cyber ​​and digital security aspects will have an important place in the regulatory agenda.
Increased sandbox models, especially around cashless transactions and digital finance, will accelerate the need to shape regulatory narratives.
Get ready for TechFin as global giants expand their grasp of the technologies, consumer engagement in payments, lending, banking and insurance.
Prepare regulations for Web 3.0. That would require financial regulators to build a framework about what it could mean for the future of finance.
With India’s economic growth, and its importance as a major consumer market and investment destination, our regulators will have a say in the global financial arena. In this regard, hopefully we will see a protectionist effect for domestic players.
Environmental, social and governance (ESG) issues are receiving more attention for both investors and financial entities. The financial regulators will be in close scrutiny in this space as India moves towards its own net-zero targets in line with the United Nations Sustainable Development Goals (SDG). The author is a CEO coach and business consultant.


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