Mumbai, Jan 9: Financial institutions need to imbibe the spirit of regulations, rather than just “tick-box-based compliance culture”, Reserve Bank Governor Sanjay Malhotra said on Friday as he pitched for a collaborative approach to curb digital frauds.
Addressing the Third Annual Global Conference of the College of Supervisors, the governor said while digital channels help improve inclusion and convenience, without guardrails, they can also facilitate opaque pricing, weak disclosures, and inappropriate recovery practices.
Digitalisation, he said, widening access, enhancing efficiency, improving convenience, and enabling far more tailored financial services.
At the same time, it is reshaping the nature and scale of risks, accelerating the transmission of disruptions and risks underscoring the need for agility in regulatory and supervisory response.
Essentially, the objectives and purposes of the regulator and the regulated are the same — to ensure long-term growth, advancement, stability, integrity, and credibility of the financial system, Malhotra said.
“The regulators and the regulated are in the same team and not opposite camps. We are partners in the nation’s development. Therefore, we have to work together to strike the right balance between growth and systemic stability on the one hand and between responsible innovation and consumer protection on the other hand,” he said.
He further said supervisory action and enforcement are often viewed as the most visible aspect of regulation and supervision.
It is, therefore, important to clarify that such actions by the Reserve Bank must be seen as part of a continuum of supervisory tools, not as a standalone response.
Stressing that digitalisation and innovations are aligned with fair outcomes for consumers, Malhotra said a key element of this endeavour should be to protect customers from the menace of rising digital frauds, which has engaged national attention.
“While banks and other regulated entities individually should continue to improve their tools, techniques and processes in preventing and tackling digital frauds, this is an area where we need to collaborate with each other to build analytics and tools to detect mule accounts and suspicious transactions timely and pre-emptively,” he said.
The governor said regulated entities need to better understand regulatory expectations and requirements, particularly in the areas where models, partners, data, and digital delivery create new forms of risk.
“They need to imbibe the essence of regulation and follow the spirit of it and not merely follow a tick-box based compliance culture. Our endeavour, rather, should be to develop common understanding which can reduce frictions and improve outcomes,” he said.
On effective use of data, he said Department of Supervision can build stronger analytics and supervisory dash boards for enhanced off-site surveillance, to support more continuous monitoring and early risk detection.
“Our endeavour should be to make supervision more off-site than on-site and as near real-time and not periodic,” Malhotra added.
In his address, the governor also emphasised that the fundamental architecture of regulation and supervision remains the same even in the digital era.
They still follow the guiding principle of risk sensitivity, he said, adding that regulated entities still have their stakeholders’ interest topmost in mind.
Malhotra said regulation and supervision must remain risk-based, proportionate, and technology-neutral.
Accountability must remain human, and automation should not dilute accountability, he added. (PTI)
