This Article has been written by Ms. Khushboo Sharma, a 5th year student of Vivekananda Institute of Professional Studies, Delhi.

ABSTRACT

Fintech’s legal landscape in India is ever-changing concept. The Fintech industry has witnessed an unprecedented growth recently. It has shown that it is capable of completely transforming the traditional financial landscape in India through innovations in both product and services.  It is fundamental to regulate the Fintech sector so that its growth is fostered which will lead to new economic avenues for the country.  

Among other risks, the Fintech also faces issues pertaining to cyber-security. Due to this reason, Intellectual Property Rights are such another domain of Fintech. The Fintech uses various data analytics, algorithms, and software in its day-to-day functioning. These data, softwares, etc are stored and utilised by the companies and in many cases, these are likely to be breached or stolen. In such cases, due credit to the authors and owner of such algorithms and software and data’s face violations of the IP rights relating to copyright, patent etc.

 In this article, we are going to discuss the regulatory compliance and the Intellectual Property Rights that exists in Legal landscape of Fintech in India.

Keywords: Fintech, Regulations, Compliance, Intellectual Property Rights, RBI, Laws.

INTRODUCTION

As the fintech sector in India is expanding, rules and regulations for its protection and supervision are becoming more essential. It is so as to ensure the business works fairly, securely, and in a transparent manner. Like in any other country, fintech companies in India are also subject to a variety of regulations, including those relating to data protection, payment systems, consumer protection, and financial services.

Fintech compliance can be termed as the adherence to the regulatory laws that govern the business models and technologies. This may also involve the concept pertaining to cyber security, consumer protection and data privacy in the financial field.

In comparison to this, the Intellectual Property Rights are also considered as an important aspect of Fintech sector. As the Fintech is an involving concept, it deals with all facets of financial sector. In other words, in operating Fintech certain algorithms, calculations, data are used. These works could either be generated by AI or by human beings and in both the cases we need to protect the Intellectual property Rights of such authors for the needs of attribution and identification, as well as to make sure that the author gets due credit for his work.

However, as there is no comprehensive legislation that exclusively deals with fintech laws and the complications that arises out of IPR, certain legislations like the Patents Act, 1970; the Copyright Act 1957; Trademark Act 1999 does provide framework for Intellectual Property rights and its protection thereof and acts a regulation for such property rights and violations in this field.

On the other hand, the Reserve Bank of India (RBI) is one of the key regulators of Fintech in India, in charge for regulation and monitoring of the country’s payment and settlement system. It has also issued rules for non-bank payment and settlement systems for fintech businesses so as to guarantee that they fulfil the required safety and security criterions along with enhanced efficiency.

It is also to be noted that the Securities and Exchange Board of India (SEBI) along with Insurance Regulatory & Development Authority (IRDA) are the regulatory bodies that primarily governs the insurance business in the country also play a role in regulating the fintech industry in the country. The regulatory agencies also include the Ministry of Corporate Affairs (MCA), and the Ministry of Electronics and Information Technology (MEITY).

THE REGULATORY COMPLIANCE IN FINTECH 

Regulations in India:

In India, the regulatory landscape of the fintech sector has been witnessed to be as highly fragmented. This is particularly because there are no specific set of laws and regulations governing exclusively fintech services and products in our country. Although, the policymakers in India have recognised the need of regulation in the fintech sector which becomes particularly important due to its speedy growth in the Indian economy and impact on the financial stability and protection of the customer.

To consider these facts, The RBI has set up a special unit which is known as “The Department of Regulation,” which was set up in the year 2018 and is in charge for supervising and regulating fintech companies functioning in India.

• Payment and Settlement Systems Act (2007): This is the elementary piece of legislation that undertakes to control payment regulation in our country. This act makes it clear that without the prior approval of the RBI, the establishment and operation of any payment system in India is forbidden. Such payment systems or structure include: Credit and debit card operations, smart card facilities, money transfers, and PPIs.
• The Peer-to-Peer Lending Platform Directions (2017): These directions define the lender exposure regulations and also states the borrowing restrictions that pertains to the activities of P2P lending platforms in our country.
• NBFC Regulations: NBFCs in India are governed by the RBI Act which came into force in the year 1934. As per the RBI’s requirements, each and every organization that deals in providing fintech services in India must be registered. Furthermore, in accordance to Section 45-IA of the Act, it is stated that no NBFC may conduct non-banking financial institution operations without primarily obtaining a certificate of registration from the Reserve Bank of India.
• Payments banks are governed by these rules: Payment banks also work much similar to the other banks, although usually on a smaller scale. It is important to note that they do not give loans or issue credit cards. These banks have received license for their operation under Section 22 of the Banking Regulations Act,1949. These banks are registered as private limited companies. Certain banks’ activities are limited by specific licensing requirements, in particular, the acceptance of demand deposits and on payment.
• The Companies Act, 2013: In India, as fintech businesses operations are subject to various laws and regulations. It is therefore, under the Company’s Act 2013, these businesses are directed to register and comply with all applicable laws and regulations similar to in the cases of other business in the country.

Some key departments and institutions created by the RBI in order to promote the growth of Fintech industry in India are as follows:

1. RBI Fintech department: The Reserve Bank of India in the year 2022, created a department for Fintech so as to identify the possible challenges and opportunities associated to this sector. The primary achievements include- Phased pilot of central bank digital currencies (CBDC), setting up in over 75 Indian districts digital banking units (DBU). The RBI has also constituted a Fintech WG which a working group under the chairmanship of the Fintech Department’s executive director. The main motive behind the development of the group is to develop and manage a robust fintech ecosystem in India.
2. Reserve Bank Innovation Hub (RBIH): The RBIH is a wholly owned subsidiary under the Reserve Bank of India which was created in the 2020. It also aims at fostering an environment that acts as a positive catalyst for Fintech’s growth in India.
3. National Payments Corporation of India Regulations on UPI Payments: The UPI payments in India are governed by NPCI developed UPI Procedural Guidelines. As per this framework, it is necessitated for the banks to create money transfer services using UPI platforms. For this, the banks are required to contract with technology suppliers to render mobile applications for UPI payments, however, it is to be done only as per the NPCI’s mandated eligibility requirements and prudential standards.

INTELLECTUAL PROPERTY IN FINTECH AND ITS REGULATION IN INDIA

Along with the compliance regulation, it is essential that the fintech companies also consider complying with laws made for the protection and regulation of the Intellectual Property Rights. The Intellectual Property Rights (IPR) are such legal rights that are given to the creator in order to protect his innovation or creation for certain period of time. The hard labour of a person is taken into consideration and he is made able to enjoy monetary and moral rights vested in his creation/ innovation. This in turn gives recognition to the creator, protect his interests and motivates him to continue innovate.

Copyright in Fintech

Fintech includes almost every innovation in the field of financial technology. The Indian Copyright Act, 1957 mentions that computer codes, visual interface features, video, algorithms, API and other softwares enjoy copyright protection in India. In cases of software in any application or machines meant for financial transactions, the author of such software programmes enjoy protection over their original work. The copyright is considered to be a fundamental Intellectual property right and it is for the same reason its protection become crucial.

Trademark in Fintech

A trademark is a mark that makes us familiar with a certain product or service. So much so that the goodwill of a product / service gets associated to its name or mark. In the fintech, trademarks are especially important as it conveys the financial services / goods to the customers and other interested stake holders. A trademark is an integral Intellectual property right and is protected and regulated under The Trademarks Act, 1999.

Patents in Fintech

New innovation can be patented so that the innovator enjoys some special right or monopoly for a considerable period of time on his work. In cases where a fintech companies comes out with a new product or services, it has a right to patent the same. It helps the company gain competitive advantage in the market and also helps compensate for the funds used in research and development of the patent. It is however, crucial to point that not all fintech innovations are per se patentable and there is certain criterion on the same. The patent is regulated under the Patents Act 1970 in India.

Designs in Fintech

Industrial designs pertaining to the look and feel of a tangible product or the design of a website or application is protected and regulated under the purview of Designs Act, 2000. This intellectual property can be associated to the designs of transactional machines, electronic cards, websites, computer icons and interfaces but is not only limited to it. The designs act aims to protect the unique designs of such products and services in order to make sure that rivals do not copy and take the benefit of someone else’s existing goodwill.

CONCLUSION

Fintech companies often face unique risks relating to cyber security, regulation, finance and business, which directly or indirectly can be detrimental to their reputation. The fintech sector must consider it absolutely necessary to navigate a complex regulatory environment. In addition to this, anticipate cyber security threats that pose a serious danger. The businesses involved in Fintech must strive to strike a balance in innovation with operational risks. On the other hand, it must take into due consideration the strategies for Intellectual property protection, along with addressing investor risks, and be able to identify reputational risks in order to maintain consumer fidelity and confidence.

The legal landscape of fintech in India is still a new concept. The problems that impact the fintech sector today are addressed by different legislations, and therefore, the regulation of Fintech in India is considered to be greatly fragmented. Due to this reason, the compliance become rather complex, however, a fintech business is duty-bound to comply with both regulatory and Intellectual Property rights in order to make sure that no business or interested stakeholder falls prey to any related problems and that the Fintech sector continues to create a robust economic environment for our country. 

REFERENCES

1. 1. https://www.linkedin.com/pulse/relation-between-ipr-fintech-laws-india-karishma-singh/ – Karishma Singh
   2. https://www.linkedin.com/pulse/regulatory-framework-fintech-india-gunjan-verma/
   3. https://www.cov.com/-/media/files/corporate/publications/2018/12/intellectual_property_issues_in_blockchain_and_fintech.pdf
   4. https://www.globallegalinsights.com/practice-areas/fintech-laws-and-regulations/india

• https://www.linkedin.com/pulse/what-fintech-compliance-how-maintain-cyberarrow/

1. https://www.iiprd.com/intellectual-property-rights-for-fintech/
2. https://www.lexology.com/library/detail.aspx?g=a334ded1-edea-4833-94aa-ce868bdaa02a