It was organized by Advocacy Excellence Enablers of former SEBI Chairman M Damodaran here on Thursday.
Going a step further, he warned that “the country’s banking system is now dependent on two to three large companies for its software service requirements, and if these companies stop investing and ensuring that they adapted to the world, it can pose a risk”.
Chowdhury said such concentration is exerting pressure on the banking system to invest in technology to take care of wider needs. “We will have to bear all the costs. Again, it comes down to somebody doing something and we have to make sure that there is stability and resilience. So, the interoperability is now creating a problem,” he added.
Noting the dominant role of large non-banking technology companies, or BigTechs, and financial technology firms in the financial system, the Reserve Bank in June had released draft guidelines on outsourcing of IT and IT-enabled services by regulated entities.
The objective of the regulator is to ensure effective management of risks in outsourcing IT activities, such as network security, cloud computing, application service providers etc.
In the past, the Reserve Bank warned that BigTech could grow exponentially and pose a risk to financial stability, which could arise from the increased intermediation of existing institutions.
The RBI paper also released a draft paper specifying norms related to use of cloud computing services and outsourcing of security operations centre. It had then proposed that outsourcing of IT and IT-enabled services and the risks associated with it required institutions to set up a risk management framework.
The central bank said in the June 2022 edition of the Financial Stability Report that such complex interlinked operational relationships between BigTech firms and financial institutions could lead to issues relating to concentration and contagion risks and potential anti-competitive behaviour.
The RBI paper said that due to their large size and clientele, big tech poses serious barriers to creating a level-playing field to foster innovation in financial technology and have the financial strength to face competition. Furthermore, due to their adoption as third party service providers, they have become the underlying platform on which many services are offered.
The RBI paper cautioned that going forward, regulations would need to be taken into account, “This uniquely positions bigtechs to easily acquire cross-functional databases that can be used to develop innovative product offerings.” can be done.” Bigtechs can create new inter-linkages with existing financial institutions.
Chaudhary said that given that fintechs are here to stay, innovation will definitely outpace regulations, due to which, regulations will continue to grow here to keep more oversight on new types of businesses.
With regulations and supervision expected to increase manifold from a technology perspective, the onus will also increase on institutions and they will need to invest more in technology to protect them from issues like cyber security, which are already being witnessed, he said. Used to be. PTI Ben Baal Baal