Need to regulate electronic fund raising platforms: Deputy RBI Governor

MUMBAI, INDIA: Days after Raghuram Rajan, Governor, RBI, voiced concerns on emerging financial instruments, SS Mundra, his deputy reiterated the need for bringing these instruments under regulatory scanner.

Outlining the new trends in the market at the annual bankers summit Fibac, Mundra said that peer-to-peer lending, a system of lending money to unrelated parties is mushrooming in the West, and crowd-funding which has already started in the country with platforms like Ketto, Wishberry and Start51, are big concerns.

He also spoke about emerging innovations like Bitcoins, setting up of online lending companies by e-commerce players and high frequency trading.

Apart from these, there is also an emerging trend of electronic currencies. In this, the vendors claim they have developed algorithms for issue of digital tenders which can be issued by a central bank in a secured fashion.

"Unbridled proliferation of virtual currencies, particularly the decentralised ones, could have implications for central banks in terms of money supply estimates and consequently for monetary and exchange rate policies," he said.

High frequency trades and Algo trading reduce the resilience of the market in a stress situation and also needs focused monitoring for erroneous trades and market manipulation, he said.

Under such circumstances, bringing in regulations for electronic platforms will make it easier to regulate their activities.

"It is near impossible to regulate the behaviour and choices of individuals and hence, it will be more practical for the regulatory authorities to bring in appropriate regulatory changes in their jurisdictions, which would enable regulation of the aggregators' electronic dealing platforms," he said.

"As a regulator, one may not be overly concerned about the manner in which the finance is raised, but there are concerns around the orderly growth of the system, consumer protection and grievance redressal, disaster recovery and business stability plans for the intermediating electronic platforms," the deputy governor said.

Mundra also said there is a need to restrict harmful disruptions. He urged the innovators to first show the product to the regulator before launching it in the market, with a promise of early clearance.

He acknowledged that one company has made a product presentation before RBI, but added that any central bank is yet to adopt it.