RBI Deputy Governor S.S. Mundra has said that disruptive innovation in financial sector calls for regulation as it can challenge the economic stability and growth of a country with its irrational exuberance.
In his special address at a session on 'Regulatory Response to Disruptive Innovation' at the two-day banking conference, jointly organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Indian Banks' Association (IBA) with Boston Consulting Group (BCG) as knowledge partners, Mundra said that there was an immediate need to spot the grey zones and the jurisdiction of regulators must be established at the earliest in such areas to stop proliferation of unlawful practices in financial sector.
He said that in today's complex environment to plug the loopholes, financial institutions should make an effort to learn from each other's experiences and share best practices.
He added that innovation should be encouraged but new financial products should be run through a regulator before they are introduced in market.
Mundra said that the regulator in such a scenario would need to ensure that timely approval is being granted to the innovator maintaining secrecy of the product so that the innovator's interest remains unhurt.
Speaking in context of crowd-funding and peer-to-peer lending, Mundra said that it is impossible to regulate the choices of individuals hence there is a need to bring about a legislative change to regulate the electronic platform.
He added that there is a need to draw right insights to prevent harmful disruptions and external review by rating agencies should be encouraged.
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In his special address, Dr. Atiur Rahman, Governor of Bangladesh Bank, said that for the success of disruptive innovation in the financial sector it is necessary for banks, entrepreneurs and technology solution providers to work in partnership.
Dr. Rahman, who had been instrumental in shaping inclusive and green central bank practices, said that financial disruptions such as BKash, Islami Bank mCash and SureCash have been received well in Bangladesh but a regulatory framework is much-needed for such disruptions.
Commenting on the economic instability in the region, Dr. Rahman said that with China devaluating its currency, the countries in the region are experiencing upheavals but Bangladesh, owing to its sound financial system, is placed very well and remains untouched by it.