Indian Fintech Law: The Complete Best Guide

FinTech Law is concerned with all elements of online financial transactions. It might range from laws and regulations governing the storage of consumer data to Internet banking practices.

It also addresses the broader challenges of new online-only banks and the growing popularity of cryptocurrency for payments and investing.

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It is the regulatory ecology and legislative framework that governs the multi-trillion-dollar financial technologies (fintech) sector.

Fintech Law consists of over 100 laws as well as several regulators, tribunals, enforcement bodies, pooled investment schemes, and intermediaries.

Examples of Fintech law applications include:

1. Consumer payments. 

2. Transfer of funds services. 

3. Buying and selling.

4. KYC and digital onboarding. 

5. Financial consulting. 

6. Services for wealth management. 

7. Services for digital identification.

8. Rational contracts. 

9. Products for financial inclusion.

10. Cyber Protection. 

Facts:

1. Digital transformation in India is expected to generate $1 trillion in economic value by 2025. It supports 60-65 million employment opportunities.

2. The Indian government has identified blockchain application cases in the following sectors: academic, agriculture, banking and financial services, healthcare, land records, and trade invoicing.

3. Globally Fintech business is valued at $4.7 trillion, according to Goldman Sachs.

4. 88% of legacy banking businesses are concerned about losing revenue to fintech startups in areas such as payments, money transfers, and personal loans.

5. There are about 12,000 fintech startups in the world.

6. Fintech businesses are already used by half of all banking customers worldwide.

Fintech law includes the following provisions:

1. 100+ Fintech-related Acts, Rules, Regulations, Circulars, and Guidelines, covering debt, equity, and hybrid instruments, as well as derivatives.

2. Regulators of the fintech industry, including CCI, FIU, IBBI, IRDAI, MCA, PFRDA, RBI, and SEBI.

3. Investment pools like mutual funds, hedge funds, debt funds, infrastructure funds, SME funds, and private equity funds.

4. Tribunals for fintech such as NCLT, NCLAT, and SAT.

5. Regulatory and investigative bodies for fintech, including the CBI, CDBT, CBITC, ED, and police. 

6. Fintech organizations like GIFT SEZ-IFSC, CCIL, NPCI, and CCIL.

7. Regulated intermediaries include stock exchanges, commodity exchanges, credit rating agencies, custodians of securities, depositories, insurance repositories, insurance self-network platforms, and trade receivables discounting systems.

8. In addition, there are other regulated organizations such as account aggregators, foreign portfolio investors, payment banks, and peer-to-peer lenders. 

Financial assets and securities.

In most fintech use cases, financial assets are involved. A financial asset is a “non-physical” item, such as cash or equity shares, whose value is derived from a contractual claim. Non-financial assets such as tangible property (such as land, real estate, gold, and rice) and intangible assets are distinct from financial assets for example copyrights, patents, and trademarks. 

Financial assets known as securities can be exchanged on stock exchanges and other similar venues. The Supreme Court of the United States defined security as “a contract, transaction, or scheme wherein a person invests his money in a joint business and is taught to expect gains entirely from the promoter or a third party” in the Howey test, which was established in 1946.

Securities are defined by the Securities Contracts (Regulation) Act, of 1956 in the Indian context, and include things like shares, bonds, debentures, derivatives, mutual fund units, government securities, etc.

Various forms of securities exist, including:

Debt, equity, hybrid, and derivative securities are all available.

Debt security reflects borrowed funds that need to be repaid. The loan amount, interest rate, and maturity or renewal date are all specified in the security.

Bonds, call money, notice money, certificates of deposit, commercial paper, government securities, and debentures are a few examples.

Common shares and equity shares both signify ownership in a corporation. Equity shareholders often have the right to vote for directors and participate in significant corporate decisions because they are owners. If the company is wound up, they are also eligible to receive a portion of any remaining assets.

Equity shares, bonus shares, rights shares, and sweat equity are a few examples.

Entities that are governed: 

There are three types of regulated entities:

1. Schemes for Pooled Investment.

2. Intermediaries who are regulated.

3. Other entities are subject to regulation.

1. Schemes for Pooled Investment.

A pooled investment scheme, in general, is a system or arrangement in which investor contributions are “pooled” and used to generate profits. A professional firm manages such programs on behalf of the investors. This company, not the investors, is in charge of day-to-day management and operations.

Angel funds are funded by high-net-worth individuals who are experienced, professionals, or serial entrepreneurs. The SEBI (Alternative Investment Funds) Regulations, 2012 govern these funds, addressed in the ASCL booklet Angel Funds.

Debt funds primarily invest in debt or debt securities of publicly traded and unlisted corporations. The SEBI (Alternative Investment Funds) Regulations, 2012 govern these funds, addressed in the ASCL publication Debt Funds.

Infrastructure Funds invest largely in partnership interests, listed debt, unlisted securities, securitized debt instruments, and unlisted debt of corporations that operate, construct, or hold infrastructure projects. The ASCL publication Infrastructure Funds discusses these funds, governed by the SEBI (Alternative Investment Funds) Regulations, 2012.

The main investments of private equity funds are in equities, equity-linked instruments, and partnership interests. The ASCL publication Private Equity Funds discusses these funds, governed by the SEBI (Alternative Investment Funds) Regulations, 2012.

Small and medium-sized enterprise (SME) shares are the main investment focus of SME funds. The ASCL publication SME Funds covers these funds, governed by the SEBI (Alternative Investment Funds) Regulations, 2012.

Social Venture Funds’ investors may consent to receive limited or muted profits because they invest largely in the shares and units of social companies. The SEBI (Alternative Investment Funds) Regulations, 2012 govern these funds, discussed in the ASCL booklet Social Venture Funds.

Venture capital funds, which also include angel funds, invest largely in emerging and early-stage venture capital operations as well as unlisted stocks of start-up companies. The ASCL publication Venture Capital Funds discusses these funds, governed by the SEBI (Alternative Investment Funds) Regulations, 2012.

Hedge funds use a variety of complex trading methods in their trading to generate quick returns. They might use leverage, for instance, by investing in listed or unlisted derivatives. These funds are described in the ASCL publication Hedge Funds and are subject to the SEBI (Alternative Investment Funds) Regulations, 2012 regulations. Mutual funds raise funds from the general public and invest them in money market securities, gold and gold-related products, and real estate assets. The SEBI (Mutual Funds) Regulations, 1996 govern these funds, which are detailed in the ASCL booklet Mutual Funds.

2. Intermediaries who are regulated.

Various commodities, including metals, energy, cattle, meat, and agricultural products, are traded on a commodity market. Both the commodity derivative markets and the Indian stock market are governed by the Securities and Exchange Board of India (SEBI).

Credit rating agencies rate securities that are sold publicly or through rights issues. Through the SEBI (Credit Rating Agencies) Regulations, 1999, and associated standards, SEBI is in charge of regulating them.

A custodian maintains custody of the client’s securities and offers incidental services like keeping track of the accounts for the securities and collecting any benefits or rights that may accrue to the customer in connection with the assets. The SEBI (Custodian of Securities) Regulations, 1996 govern them.

A depository keeps your securities (shares, etc.) in an electronic form, just like a contemporary bank does. The ultimate transfer of securities is handled by a Depository Participant (DP), which might be a bank, financial institution, sizable corporate brokerage firm, etc. A depository operates through a DP. The Depositories Act of 1996 governs them.

A service called an insurance repository enables policyholders to purchase and maintain their insurance policies digitally rather than physically as paper documents. Regulating insurance repositories is the Insurance Regulatory and Development Authority (IRDA).

Anyone wishing to sell insurance online is obliged to set up an Insurance Self-Network Platform (ISNP) and adhere to the IRDA’s (Insurance Regulatory and Development Authority of India) e-commerce regulations.

Insurance Web Aggregators are governed by the IRDA (Insurance Web Aggregators) Regulations, 2017, which gather and disseminate information on insurance plans from multiple providers on a website. An investment advisor offers guidance on buying, selling, or engaging in other transactions involving securities or financial products. The 2013 SEBI (Investment Advisers) Regulations govern them.

Investment portfolios are managed by portfolio managers with the goals of profitability, expansion, and risk reduction. The SEBI (Portfolio Managers) Regulations, 2020 governs them. Various securities can be traded on stock markets (shares, debentures, derivatives, etc.). The SEBI controls them.

The Trade Receivables Discounting System (TReDS) makes it easier for MSMEs to finance their trade receivables from corporations and other customers, such as public sector organizations (PSUs) and government departments. The Factoring Regulation Act of 2011, the Registration of Assignment of Receivables Rules of 2012, and the Guidelines for Establishing and Operating the Trade Receivables Discounting System provide the regulatory framework for factors and TReDS (TReDS). The ASCL publication Regulated Entities covers this subject of Regulated Intermediaries.

3. Other entities are subject to regulation.

Account Aggregators are non-banking financial firms that offer their clients the ability to get or gather data on their customers’ financial assets. Additionally, they offer services for compiling, arranging, and presenting such material to the client or any other person by the client’s requirements. They are subject to the 2016 Non-Banking Financial Company – Account Aggregator (Reserve Bank) Directions.

Investors who reside outside of India yet have made investments in Indian stocks and debentures are known as Foreign Portfolio Investors (FPI). Under the SEBI (Foreign Portfolio Investors) Regulations 2019, SEBI is largely in charge of regulating them.

Payment banks are a specific type of financial institution that provide lending and remittance services to low-income households, small enterprises, the unorganized sector, farmers, and migrant workers. Payments banks must be licensed under the Banking Regulation Act of 1949. It is registered as a public limited company under the Companies Act of 2013.

Peer-to-peer (P2P) lenders let people borrow money from other people directly. P2P lending platforms are middlemen who give borrowers and lenders access to an online platform.

The ASCL publication Regulated Entities discusses these regulated entities in detail.

Indian Fintech Laws List:

1. Banking laws. 

• 1949 Banking Regulation Act.
• 2008 Regulations of the Board for Regulation and Supervision of Payment and Settlement Systems.
• 1982 Chit Funds Act.
• 2011 Coinage Act.
• The act of 1961 created the Deposit Insurance and Credit Guarantee Corporation.
• General Rules for the Deposit Insurance and Credit Guarantee Corporation, 1961.
• 2011 Factoring Regulation Act.
• International Financial Services Center Regulations for Foreign Exchange Management, 2015.
• Regulations for Foreign Exchange Management (Issue or Transfer of Securities by a Person Resident Outside of India), 2017.
• 2006’s Government Securities Act. 

 2. Law of Capital Markets. 

• Rules for Corporations (Issuance of Global Depository Receipts), 2014.
• Rules for Corporations (Prospectus and Securities Allotment), 2014.
• Rules for Corporations (Share Capital and Debentures), 2014.
• 1996 Depositories Act.
• Trustees’ Master Circular for Debentures.
• Regulations for SEBI (Alternative Investment Funds), 2012.
• Regulations for SEBI (Buy-Back of Securities), 2018.
• Regulations for SEBI (Collective Investment Schemes), 1999.
• Regulations for SEBI (Credit Rating Agencies), 1999.
• Regulations for SEBI (Custodian of Securities), 1996.
• Regulations for SEBI (Debenture Trustees), 1993.
• Regulations for SEBI (Foreign Portfolio Investors), 2019.
• Regulations for SEBI (Intermediaries), 2008.
• Guidelines for SEBI (International Financial Services Centers), 2015.
• Regulations for SEBI (Investment Advisers), 2013.
• Regulations from SEBI (Issue and Listing of Debt Securities), 2008.
• Non-Convertible Redeemable Preference Shares (Issue and Listing of) Regulations, 2013.
• Regulations issued by SEBI in 2018 regarding capital and disclosure requirements.
• Regulations issued by SEBI in 2018 regarding capital and disclosure requirements.
• Regulations issued by SEBI in 2018 regarding capital and disclosure requirements.
• Regulations issued by SEBI in 2018 regarding capital and disclosure requirements.
• Sweat equity regulations were issued by SEBI in 2002.
• Regulations for SEBI (Listing Obligations and Disclosure Requirements), 2015.
• Regulations for SEBI (Mutual Funds), 1996.
• Regulations for SEBI (Portfolio Managers), 2020.
• Stock Exchange and Clearing Corporation SEBI Master Circular.
• Master Circular for Underwriters from SEBI.
• The Act of 1992 created the Securities and Exchange Board of India.
• Rules for the Securities Appellate Tribunal’s procedure, 2000.
• Act of 1956 on the regulation of securities contracts.
• Act of 1956 on the regulation of securities contracts.
• Rules for the regulation of securities contracts, 1957.

3. Law of competition.

• Regulations issued in 2011 by the Competition Commission of India regarding business transactions involving combinations.
• 2002 Competition Act. 

4. Law on Economic Offenses.

• The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act of 2015 were passed in 2015.
• The 1974 Foreign Exchange Conservation and Smuggling Activities Prevention Act.
• The 1946 Delhi Special Police Establishment Act. 
• Act of 2018 Concerning Fugitive Economic Offenders. 
• The Indian Penal Code from 1860.
• Rules for Authorized Officer Search and Seizure by Pension Fund Regulatory and Development Authority, 2014.
• The 2002 Prevention of Money-Laundering Act.
• The 2002 Prevention of Money Laundering Act’s schedule.
• 1963’s Central Boards of Revenue Act. 

4. Insurance laws.

• 2015 Rules for Indian Insurance Companies (Foreign Investment).
• 1938 Insurance Act.
• 2017 Insurance Ombudsman Rules.
• The Act of 1999 created the Insurance Regulatory and Development Authority.
• Regulations for Insurance Web Aggregators (IRDAI), 2017.
• Regulations for IRDAI (Registration of Insurance Marketing Firms), 2015.
• Rules for the Regulation of Insurance Business in Special Economic Zones, 2015.
• Regulations from IRDAI (Third Party Administrators – Health Services), 2016
• IRDAI’s guidelines for insurers’ anti-money-laundering systems.
• IRDAI guidelines for online insurance transactions.

5. Intellectual property law. 

• 2003 Patents Rules.
• Act of 2000 Concerning Semiconductor Integrated Circuits Layout-Design.
• Layout and Design Guidelines for Semiconductor Integrated Circuits, 2001.
• The 1999 Trademarks Act.
• 2013 Trademarks Rules. 
• 1957’s Copyright Act.
• 2013 copyright regulations.
• 2000 Designs Act. 
• 2001’s Designs Rules. 
• 1970 Patents Act.

Regulators, tribunals, enforcement agencies, and other organizations:

1. Regulators for fintech.

A statutory entity established by the Indian government under the Competition Act of 2002 is the Competition Commission of India (CCI). Its main responsibility is to stop actions that harm India’s competitive environment.

The main federal agency in charge of gathering, handling, examining, and publishing data about alleged financial transactions is the Financial Intelligence Unit. It largely operates by the 2002 Prevention of Money Laundering Act and the 2005 Prevention of Money Laundering (Maintenance of Records Rules).

The regulatory body in charge of supervising bankruptcy procedures, as well as the Insolvency Professional Agency, information utilities, and insolvency professionals, is the Insolvency and Bankruptcy Board of India (IBBI). The Insolvency and Bankruptcy Code of 2016 allowed for its establishment.

The Insurance Regulatory Authority of India (IRDAI) is a governmental agency in India responsible for regulating and marketing the insurance and reinsurance sectors. It was founded by the Insurance Regulatory and Development Authority Act of 1999. In 1935, the Reserve Bank of India Act, 1934, which established the RBI as the country’s central bank, came into effect. In 1949, it was nationalized after being privately owned for some time. It is a crucial regulator and watchdog of the Indian financial sector.

The Securities and Exchange Board of India (SEBI) regulates India’s stock exchange. It was founded in 1988 as a non-statutory agency and then became an independent statutory body in 1992 under the Securities and Exchange Board of India Act, 1992. Since the Forward Markets Commission amalgamated with SEBI on September 18, 2015, SEBI is also the regulator of the commodity futures market.

IFSCA is a centralized organization that oversees the creation and supervision of the following in India’s International Financial Services Centre (IFSC):

1. economic products

2. economic services.

3. economic establishments.

India’s first hub for international financial services is the GIFT IFSC in Gandhinagar.

With a “holistic goal to enhance ease of doing business in IFSC and create a world-class regulatory environment,” the IFSCA was established as a single regulator. The IFSC business was governed by the RBI, SEBI, PFRDA, and IRDAI before the creation of the IFSCA.

2. Tribunals for fintech.

According to the National Company Law Tribunal Rules of 2016, the National Company Law Tribunal (NCLT) was created by the Central Government by Section 408 of the Companies Act of 2013.

A quasi-judicial authority called the National Company Law Appellate Tribunal (NCLAT) was formed under Section 410 of the Companies Act, 2013, to consider any appeals from the National Companies Law Tribunal’s decision on a case (NCLT). 

To lighten the load on the High Courts and streamline the determination of appeals from NCLT, the NCLAT was established. The NCLAT also handles appeals from decisions made by the Indian Competition Commission and the Insolvency and Bankruptcy Board.

3. Agencies in charge of enforcing and investigating laws.

The Central Bureau of Investigation (CBI), India’s top investigative agency, investigates corruption, economic crimes, and organized crime. It was established on April 1, 1963, by a decree of the Government of India. Aside from criminal investigations, the CBI has been designated as India’s Interpol.

A statutory body under the control of the Indian government’s Ministry of Finance is the Central Board of Direct Taxes (CBDT). Through the Income Tax Department, CBDT is in charge of enforcing direct tax legislation. Located within the Ministry of Finance of the Indian government, the Central Board of Indirect Taxes and Customs (formerly known as the Central Board of Excise & Customs) is a statutory body. The prevention of smuggling is one of its purposes.

A specialist in both law enforcement and intelligence, the Directorate of Enforcement (ED) is. It is primarily in charge of policing economic offenses in India. Two specific economic laws, the Foreign Exchange Management Act of 1999 (FEMA) and the Prevention of Money Laundering Act of 2002 are primarily enforced by ED, a multidisciplinary institution (PMLA). ED has been given the responsibility of conducting the investigation and filing charges in instances covered by the PMLA.

Every state and union territory has a police force that is typically led by a Director General of Police and directly supervised by the state’s Home Ministry. The fundamental piece of law that controls India’s police force is the Police Act of 1861. Most states’ and union territories’ police forces are separated into civil police and armed contingents in terms of organizational structure.

4. Other organizations.

A sophisticated payment and settlement infrastructure in India is being built by the not-for-profit National Payments Corporation of India (NPCI), which was established under the Payment and Settlement Systems Act, of 2007. A total of 56 member banks own shares in it.

The assured clearing and settlement services are provided by the Clearing Corporation of India Limited (CCIL) for transactions in money. Government securities, foreign exchange, derivative markets, and the independent Center for banking technology. Its development and Research are known as the Institute for Development and Research in Banking Technology (IDRBT).

India’s first International Financial Services Center is the Special Economic Zone at Gujarat International Finance TecCity (GIFT) (IFSC).

The ASCL booklet Fintech Regulators, Tribunals, and Agencies discusses the Fintech regulators, tribunals, enforcement agencies, investigative authorities, and other agencies. 

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