Fintech Market Overview

This article does not constitute legal advice.

Cross-border payments in India

Fintech Software

India does not have a regulatory regime designed for foreign licences to be directly passported from another jurisdiction and used in India for providing financial services. Foreign licensed entities looking to provide similar regulated services in India need to separately seek the relevant authorisation under the applicable law in India for such activities. Although, practically, entities with an existing licence in some foreign jurisdictions may find it easier to seek the relevant authorisation in India. To this extent, the foreign direct investment (FDI) policy in India for financial services is broadly conducive, generally allowing for FDI of up to 100 per cent under the automatic route (i.e., without the approval of the Indian government) for most financial services that are regulated by the RBI and the SEBI and for activities of insurance intermediaries. This is subject to compliance with prescribed FDI-linked conditions and the sector-specific regulations.1

Any restriction on offering fintech services or products from abroad without a physical presence or a local licence in India is largely dependent on whether and to what extent such activity is regulated in India. For instance, under the extant regulatory framework, many fintech services and products, such as payment wallets, peer-based lending platforms and investment advisory services, can only be provided by entities incorporated and registered in India. Similarly, foreign entities proposing to provide payment and settlement services in India need to obtain a prior authorisation from the RBI. Cross-border payments and transactions in India are strictly regulated, and only an RBI-authorised entity can deal in foreign exchange or in foreign securities as an authorised dealer, money changer or offshore banking unit. To this extent, the jurisdiction of the SEBI is limited to the Indian securities markets and services to Indian investors in relation to global markets may fall outside the SEBI's regulatory ambit.1

An important cross-border issue for foreign entities providing fintech services in India is the requirement of localisation of financial data for various services on servers or hardware located in India, including by payment system providers, payment intermediaries and peer-based lending platforms. For cross-border payment transactions, financial data may temporarily be transferred abroad for the purpose of processing the transaction but would thereafter need to be deleted from the systems abroad and stored only in India. These requirements inevitably restrict the hosting of financial data on a cloud or server outside India.1

A foreign company may also be required to comply with certain provisions of the Indian Companies Act where it has a 'place of business' in India (directly or through an agent), physically or through an electronic mode, and conducts any business activity in India. Further, the recently amended consumer protection regulation in India, namely the Consumer Protection Act 2019 and the Consumer Protection (E-Commerce) Rules 2020, includes specific provisions for 'e-commerce', defined broadly to include buying or selling of goods or services including digital products over digital or electronic networks. These regulations also apply to foreign-owned e-commerce entities that are not established in India, but 'systematically' offer goods or services to consumers in India, including in connection with banking, finance and insurance.1

The Indian government has recently developed a regulatory framework for establishing international financial services centres (IFSCs) in India within the jurisdiction of a single regulator (i.e., the International Financial Services Centres Authority (IFSCA)), to bring India in line with global financial hubs and to attract overseas investors. IFSCs have been envisioned as special economic zones and financial centres located within India.1

Fintech entities in India have recently been subject to judicial scrutiny under writ and public interest litigation on issues such as violation of authorisation requirements, data localisation and data misuse. The petitions broadly seek judicial intervention to prohibit operations of fintech entities in India without a local presence and to direct regulators to develop a more comprehensive and stricter legal framework for technology and e-commerce companies operating in the financial sector in India.1

Fintech in India

Fintech in other countries

  1. https://thelawreviews.co.uk/title/the-financial-technology-law-review/india
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