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Fintech Law is the regulatory ecosystem and legal framework governing the multi-trillion-dollar financial technologies (fintech) sector. Fintech Law comprises 100+ laws and multiple regulators, tribunals, enforcement agencies, pooled investment schemes, and intermediaries.
Fintech law comprises:
- 100+ Fintech related Acts, Rules, Regulations, Circulars & Guidelines including those relating to debt, equity & hybrid securities and derivatives
- Fintech Regulators like CCI, FIU, IBBI, IRDAI, MCA, PFRDA, RBI, and SEBI
- Fintech Tribunals like NCLT, NCLAT, and SAT
- Fintech Enforcement & Investigation Agencies like CBI, CDBT, CBITC, ED, and Police
- Fintech Agencies like NPCI, CCIL, IDRBT and GIFT SEZ-IFSC
- Pooled Investment Schemes like Angel, Debt, Infrastructure, Private Equity, SME, Social Venture, VC, Hedge and Mutual Funds
- Regulated Intermediaries like Commodity Exchanges, Credit Rating Agencies, Custodian of Securities, Depositories, Insurance Repositories, Insurance Self Network Platforms, Insurance Web Aggregators, Investment Advisers, Portfolio Managers, Stock Exchanges and Trade Receivables Discounting System
- Other regulated entities like Account aggregators, Foreign Portfolio Investors, Payment banks, and Peer-to-peer lenders
Become an expert with the Program in Fintech Law conducted by Asian School of Cyber Laws.
Table of Contents
1. What is Fintech?
Financial technology (Fintech) is new tech that improves and automates the delivery and use of:banking, financial services, insurance, and capital markets.
Popular financial technologies include artificial intelligence (AI), biometrics, blockchain, bots, cognitive services, data analytics, Internet of Things (IoT), and machine learning.
Some interesting facts:
- Goldman Sachs estimates the worldwide fintech sector to be worth $4.7 trillion.
- There are more than 12,000 fintech startups worldwide.
- 88% of legacy banking organizations fear losing revenue to fintech companies in areas such as payments, money transfers, and personal loans
- Half of the banking customers globally are already using fintech firms?
- India’s digital transformation is estimated to create $1 trillion of economic value in 2025, sustaining 60-65 million jobs.
- The Government of India has identified blockchain use cases in the following sectors: Academic, Agriculture, BFSI, Healthcare, Land records, and Trade invoicing.
Fintech use cases include:
- Retail payments
- Money transfer services
- Marketplace lending
- Digital onboarding and KYC
- Financial advisory services
- Wealth management services
- Digital identification services
- Smart contracts
- Financial inclusion products
- Cyber security
2. Securities and Financial Assets
Most fintech use cases involve one or more financial assets. A financial asset is a “non-physical” asset whose value is derived from a contractual claim e.g. cash or equity shares. Financial assets are distinct from non-financial assets like tangible property (e.g. land, real estate, gold, rice) and intangible assets (e.g. copyrights, patents, trademarks).
Securities are financial assets that can be traded on financial markets e.g. stock markets. According to the Howey test laid down by the Supreme Court of the United States in 1946, a security is “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.”
In the Indian context, securities are defined by the Securities Contracts (Regulation) Act, 1956 and include shares, bonds, debentures, derivatives, mutual fund units, government securities, etc.
Securities are of 4 types:
- debt securities,
- equity securities,
- hybrid securities, and
- derivatives.
A debt security represents money that is borrowed and must be repaid. The security stipulates the size of the loan, interest rate, and maturity / renewal date.
Examples: Bonds, Call / Notice / Term Money, Certificate of Deposit, Commercial Paper, Government Securities, and Debentures.
Equity shares are also called common shares and represent ownership of a company. As owners, equity shareholders normally have the right to elect directors and to vote on certain major corporate decisions. They are also entitled to share in any residual assets of the company if it is wound up.
Examples: Equity shares, bonus shares, rights shares, and sweat equity.
Equity shares represent a share of the total equity capital of a company. Let us say that Noodle Ltd has raised Rs 100 from the public by way of equity share capital. That means members of the public have contributed this money to Noodle Ltd and in return, they have received 10 shares of Rs 10 each (totaling Rs 100). If Noodle Ltd makes profits, these people (called shareholders) will receive benefits such as dividends, free shares (bonus shares), etc. If Noodle Ltd goes bankrupt then the shareholders will lose their investment.
Equity shares are traded on stock exchanges (there are about 5000 companies whose shares are traded on the Bombay Stock Exchange and 1600 on the National Stock Exchange). Equity share investments are high risk – high return investments. The risk depends upon factors such as the size, profitability and financial stability of the company, the capabilities of its management and its exposure to general economic downturns, foreign exchange risks and new competition.
Equity shareholders are the last in line (behind tax authorities, employees, creditors and preferred shareholders) to have a claim on the assets of the company in the event of insolvency.
A bonus issue of shares implies that shares are given free of charge to the existing shareholders. In a rights issue, existing shareholders are given the right to purchase additional shares at a lower price. Equity shares can also be allotted for non-cash consideration. This is referred to as sweat equity.
Hybrid securities combine characteristics of equity as well as debt securities.
Examples: Preference shares, Equity Linked Notes, Employee Stock Options, Depository receipts, and Security receipts.
Virtual currency is a digital representation of value that can be digitally traded and functions as a medium of exchange; and/or a unit of account; and/or a store of value, but does not have legal tender status (i.e., when tendered to a creditor, is a valid and legal offer of payment) in any jurisdiction.
Virtual currency is different from fiat currency and e-money.
Derivatives are financial instruments whose value is derived from the prices of one or more underlying assets. These underlying assets could be equity shares, foreign currencies, commodities (corn, wheat, silver) etc.
Derivatives can also be defined as contracts between two parties to exchange payments linked to the prices of underlying assets. A derivative can also be defined as a financial instrument that does not constitute ownership, but a promise to convey ownership.
By their very nature, financial markets are marked by a very high degree of volatility. Through the use of derivative products, it is possible to partially or fully transfer price risks by locking-in asset prices. By locking-in asset prices, derivative products minimize the impact of fluctuations in asset prices on the profitability and cash flow situation of risk-averse investors.
Examples: forwards, futures and options.
These and other related topics are covered in the ASCL publication titled Securities & Financial Assets.
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3. Regulated Entities
Regulated entities can be divided into 3 categories:
- Pooled Investment Schemes
- Regulated Intermediaries
- Others
3.1 Pooled Investment Schemes
Generally speaking, a pooled investment scheme is a scheme or arrangement under which contributions made by investors are “pooled” and utilised to generate profits. Such schemes are managed by a specialist entity on behalf of the investors. The day-to-day management and operations are controlled by this entity and not by the investors.
Angel Funds raise funds from angel investors – high net-worth individuals who are experienced professionals or serial entrepreneurs. These funds are regulated by the SEBI (Alternative Investment Funds) Regulations, 2012 and are covered in the ASCL publication titled Angel Funds.
Debt Funds invest primarily in debt or debt securities of listed / unlisted companies. These funds are regulated by the SEBI (Alternative Investment Funds) Regulations, 2012 and are covered in the ASCL publication titled Debt Funds.
Infrastructure Funds invest primarily in unlisted securities / partnership interest / listed debt or securitized debt instruments of companies operating, developing or holding infrastructure projects. These funds are regulated by the SEBI (Alternative Investment Funds) Regulations, 2012 and are covered in the ASCL publication titled Infrastructure Funds.
Private Equity Funds invest primarily in equity / equity linked instruments / partnership interests. These funds are regulated by the SEBI (Alternative Investment Funds) Regulations, 2012 and are covered in the ASCL publication titled Private Equity Funds.
SME Funds invest primarily in the securities of Small and Medium Enterprises. These funds are regulated by the SEBI (Alternative Investment Funds) Regulations, 2012 and are covered in the ASCL publication titled SME Funds.
Social Venture Funds invest primarily in securities / units of social ventures and their investors may agree to receive restricted or muted returns.
These funds are regulated by the SEBI (Alternative Investment Funds) Regulations, 2012 and are covered in the ASCL publication titled Social Venture Funds.
Venture Capital Funds, include angel funds, and nvest primarily in unlisted securities of start-ups, and emerging / early-stage venture capital undertakings. These funds are regulated by the SEBI (Alternative Investment Funds) Regulations, 2012 and are covered in the ASCL publication titled Venture Capital Funds.
Hedge Funds trade with a view to make short term returns and employ diverse / complex trading strategies. They may employ leverage including through investment in listed / unlisted derivatives. These funds are regulated by the SEBI (Alternative Investment Funds) Regulations, 2012 and are covered in the ASCL publication titled Hedge Funds.
Mutual Funds raise money from the public and then invest it in money market instruments, gold, gold-related instruments, and real estate assets. These funds are regulated by the SEBI (Mutual Funds) Regulations, 1996 and are covered in the ASCL publication titled Mutual Funds.
3.2 Regulated Intermediaries
A commodity exchange is an exchange where various commodities like metals, energy, livestock, meat, and agricultural products are traded. The Securities and Exchange Board of India (SEBI), which regulates the stock market in India, also regulates commodity derivative markets.
A credit rating agency rates securities offered by way of public or rights issue. They are regulated by SEBI through the SEBI (Credit Rating Agencies) Regulations, 1999 and related norms.
A custodian keeps custody of the securities of its clients and also provides incidental services such as maintaining the accounts of securities and collecting the benefits or rights accruing to the client in respect of securities. They are regulated by the SEBI (Custodian of Securities) Regulations, 1996.
Like a modern bank holds your money in an electronic form, a depository holds your securities (shares, etc.), in an electronic form. A depository works through a Depository Participant (DP) who can be a bank, financial institution, large corporate brokerage firm, etc. and is responsible for the final transfer of securities. They are regulated by the Depositories Act, 1996.
An Insurance Repository is a facility to help policy holders buy and keep insurance policies in electronic form, rather than as a physical paper document. Insurance repositories are regulated by the Insurance Regulatory and Development Authority (IRDA).
Anyone seeking to sell insurance online is required to set-up a digital platform known as an Insurance Self-Network Platform (ISNP) and follow the Insurance Regulatory and Development Authority of India (IRDA) guidelines relating to insurance e-commerce.
Insurance Web Aggregators compile and provide information about insurance policies of various companies on a website and are regulated by the IRDA (Insurance Web aggregators) Regulations, 2017.
An investment advisor provides advice about investing in, purchasing, selling or otherwise dealing in securities or investment products. They are regulated by the SEBI (Investment Advisers) Regulations, 2013.
Portfolio Managers manage investment portfolios with the object of profitability, growth and risk minimization. They are regulated by the
SEBI (Portfolio Managers) Regulations, 2020.
Stock exchanges facilitate the trading of various securities (shares, debentures, derivatives, etc.). They are regulated by SEBI.
The Trade Receivables Discounting System (TReDS) facilitates the financing of trade receivables of MSMEs from corporate and other buyers, including government departments and Public Sector Undertakings (PSUs), through multiple financiers. The regulatory ecosystem for factors and TReDS include the Factoring Regulation Act 2011, Registration of Assignment of Receivables Rules, 2012 and the Guidelines for setting up of and operating the Trade Receivables Discounting System (TReDS).
This topic of Regulated Intermediaries is covered in the ASCL publication titled Regulated Entities.
3.3 Other regulated entities
Account Aggregators are non-banking financial companies that provide the services of retrieving or collecting information of their customers pertaining to financial assets. They also provide services of consolidating, organizing and presenting such information to the customer or any other person as per the instructions of the customer. They are regulated by the Non-Banking Financial Company – Account Aggregator (Reserve Bank) Directions, 2016.
Foreign Portfolio Investors (FPI) are investors who are located outside India, but have invested in Indian securities and debentures. They are primarily regulated by SEBI under the SEBI (Foreign Portfolio Investors) Regulations 2019.
Payment banks are a niche category of financial entities to meet the credit and remittance needs of small businesses, unorganized sector, low-income households, farmers and migrant workforce. Payments banks need to be registered as public limited companies under the Companies Act, 2013 and licensed under the Banking Regulation Act, 1949.
Peer-to-peer (P2P) lenders enable individuals to obtain loans directly from other individuals. P2P lending platforms are intermediaries that provide an Internet-based platform for borrowers and lenders. They are regulated by the Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017.
These regulated entities are covered in the ASCL publication titled Regulated Entities.
4. Regulators, Tribunals, Enforcement & other Agencies
4.1 Fintech regulators
The Competition Commission of India (CCI) is a statutory body created by the Government of India, under the Competition Act, 2002. It is primarily responsible for preventing activities that have an adverse effect on competition in India.
The Financial Intelligence Unit is the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspected financial transactions. It primarily functions under the Prevention of Money Laundering Act, 2002 and the Prevention of Money-Laundering (Maintenance of Records Rules), 2005.
The Insolvency and Bankruptcy Board of India (IBBI) is the regulatory authority overseeing the insolvency proceedings and regulating insolvency professionals, information utilities and the Insolvency Professional Agency. It was established under the Insolvency and Bankruptcy Code, 2016.
The Insurance Regulatory Authority of India (IRDAI) is a statutory body tasked with regulating and promoting the insurance and re-insurance sector in India. It was established under the Insurance Regulatory and Development Authority Act, 1999.
The Pension Fund Regulatory and Development Authority (PFRDA) is a statutory body established under the Pension Fund Regulatory and Development Authority Act 2013. The PFRDA is primarily responsible for regulating, promoting and ensuring orderly growth of the National Pension System (NPS) and for protecting the interest of the subscribers to the scheme of the pension.
The Reserve Bank of India (RBI), India’s Central Bank, was set up in 1935 under the Reserve Bank of India Act, 1934. It was originally privately owned and was nationalized in 1949. It is one of the most critical regulator and supervisor of the financial system of India.
The Securities and Exchange Board of India (SEBI) is India’s securities market regulator. It was established as a non-statutory body in 1988 and later became a statutory independent body in 1992 under the Securities and Exchange Board of India Act, 1992. Since the Forward Markets Commission, which was the chief regulator of commodity market in India merged with SEBI on 18th September 2015, SEBI is also the regulator for the commodities futures market.
The International Financial Services Centres Authority (IFSCA) has been established on April 27, 2020, under the International Financial Services Centres Authority Act, 2019 and is headquartered at GIFT City, Gandhinagar in Gujarat.
IFSCA is a unified authority for the development and regulation of the following in the International Financial Services Centre (IFSC) in India:
1. financial products,
2. financial services and
3. financial institutions
The GIFT IFSC in Gandhinagar is the first international financial services centre in India.
IFSCA has been established as a unified regulator “with a holistic vision in order to promote ease of doing business in IFSC and provide world-class regulatory environment”. Before the establishment of IFSCA, RBI, SEBI, PFRDA, and IRDAI regulated the business in IFSC.
4.2 Fintech Tribunals
The Central Government constituted the National Company Law Tribunal (NCLT) under section 408 of the Companies Act, 2013 and it functions under the National Company Law Tribunal Rules, 2016.
The National Company Law Appellate Tribunal (NCLAT) is a quasi-judicial body set up under section 410 of the Companies Act, 2013 to exclusively adjudicate upon all the appeals arising out of the adjudication of the proceedings by the National Companies Law Tribunal (NCLT).
The NCLAT was set up with the objective to reduce the burden on the High Courts and to streamline the process of adjudications of appeals from NCLT. The NCLAT also hears appeals from orders issued by the Insolvency and Bankruptcy Board of India and the Competition Commission of India.
The Securities Appellate Tribunal (SAT) is a statutory body established under section 15K of the Securities and Exchange Board of India Act, 1992. It handles appeals against orders passed by the Securities and Exchange Board of India (SEBI), adjudicating officer under the SEBI Act, the Pension Fund Regulatory and Development Authority (PFRDA) and the Insurance Regulatory Development Authority of India (IRDAI).
4.3 Enforcement & Investigation Agencies
India’s premier investigating agency, the Central Bureau of Investigation (CBI), investigates corruption, economic offences, and organized crimes. It was set up on 1st April 1963 by a resolution of the Government of India. Apart from investigations of crimes, CBI also has been notified as the Interpol of India.
The Central Board of Direct Taxes (CBDT) is a statutory authority under the Ministry of Finance, Government of India. CBDT is responsible for the administration of direct tax laws through the Income Tax Department.
Central Board of Indirect Taxes and Customs (formerly Central Board of Excise & Customs) is a statutory authority under the Ministry of Finance, Government of India. One of its functions is the prevention of smuggling. It also administers the custom houses.
The Directorate of Enforcement (ED) is a specialised law enforcement and intelligence agency. It is mainly responsible for fighting economic crimes in India. ED is a multi-disciplinary organisation and is mainly responsible for the enforcement of two special economic legislations, namely, the Foreign Exchange Management Act 1999 (FEMA) and the Prevention of Money Laundering Act 2002 (PMLA). The investigation and prosecution of cases under the provisions of PMLA, has been entrusted to ED.
In every state and union territory, the police force is usually headed by a Director General of Police and is under the direct control of the Home Ministry of the State. The Police Act, 1861 is the primary legislation that governs the police force in India. In terms of organizational structure, the police force in most of the states and union territories is divided into civil police and armed contingents.
4.4 Other agencies
National Payments Corporation of India (NPCI) is a not-for-profit company set up under the Payment and Settlement Systems Act, 2007, for creating a robust payment & settlement infrastructure in India. Its shareholding is held by 56 member banks.
The Clearing Corporation of India Limited (CCIL) provides guaranteed clearing and settlement functions for transactions in Money, Government Securities, Foreign Exchange and Derivative markets.
Institute for Development and Research in Banking Technology (IDRBT) is an autonomous centre for development and research in banking technology.
The Special Economic Zone in Gujarat International Finance TecCity (GIFT) is India’s first International Financial Services Centre (IFSC).
The Fintech regulators, tribunals, enforcement agencies, investigation agencies, and other agencies are covered in the ASCL publication titled Fintech Regulators, Tribunals and Agencies.
5. List of Fintech Laws in India
5.1 Banking Laws
- Banking Regulation Act, 1949
- Board for Regulation and Supervision of Payment and Settlement Systems Regulations, 2008
- Chit Funds Act, 1982
- Coinage Act, 2011
- Deposit Insurance and Credit Guarantee Corporation Act, 1961
- Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961
- Factoring Regulation Act, 2011
- Foreign Exchange Management (International Financial Services Centre) Regulations, 2015
- Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017
- Government Securities Act, 2006
5.2 Capital Markets Law
- Companies (Issue of Global Depository Receipts) Rules, 2014
- Companies (Prospectus and Allotment of Securities) Rules, 2014
- Companies (Share Capital and Debentures) Rules, 2014
- Depositories Act, 1996
- Master Circular for Debenture Trustees
- SEBI (Alternative Investment Funds) Regulations, 2012
- SEBI (Buy-Back of Securities) Regulations, 2018
- SEBI (Collective Investment Schemes) Regulations, 1999
- SEBI (Credit Rating Agencies) Regulations, 1999
- SEBI (Custodian of Securities) Regulations, 1996
- SEBI (Debenture Trustees) Regulations, 1993
- SEBI (Foreign Portfolio Investors) Regulations, 2019
- SEBI (Intermediaries) Regulations, 2008
- SEBI (International Financial Services Centres) Guidelines, 2015
- SEBI (Investment Advisers) Regulations, 2013
- SEBI (Issue and Listing of Debt Securities) Regulations, 2008
- SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
- SEBI (Issue of Sweat Equity) Regulations, 2002
- SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
- SEBI (Mutual Funds) Regulations, 1996
- SEBI (Portfolio Managers) Regulations, 2020
- SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003
- SEBI (Prohibition of Insider Trading) Regulations, 2015
- SEBI (Real Estate Investment Trusts) Regulations, 2014
- SEBI (Share Based Employee Benefits) Regulations, 2014
- SEBI (Stock Brokers) Regulations, 1992
- SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
- SEBI Guidelines on Anti-Money Laundering, Combating the Financing of Terrorism and Obligations of Securities Market Intermediaries under the Prevention of Money Laundering Act, 2002 and Rules framed there under
- SEBI Master Circular for Commodity Derivatives Market
- SEBI Master Circular for Credit Rating Agencies
- SEBI Master Circular for Depositories
- SEBI Master Circular for Mutual Funds
- SEBI Master Circular for Stock Brokers
- SEBI Master Circular for Stock Exchange and Clearing Corporation
- SEBI Master Circular for Underwriters
- Securities and Exchange Board of India Act, 1992
- Securities Appellate Tribunal (Procedure) Rules, 2000
- Securities Contracts (Regulation) Act, 1956
- Securities Contracts (Regulation) Act, 1956
- Securities Contracts (Regulation) Rules, 1957
5.3 Competition Law
- Competition Act, 2002
- Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011
5.4 Economic Offences Law
- Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015
- Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974
- Delhi Special Police Establishment Act, 1946
- Fugitive Economic Offenders Act, 2018
- Indian Penal Code, 1860
- Pension Fund Regulatory and Development Authority (Procedure for Search and Seizure by Authorised Officer) Rules, 2014
- Prevention of Money- laundering Act, 2002
- Schedule to the Prevention of Money Laundering Act, 2002
- The Central Boards of Revenue Act, 1963
5.5 Foreign Exchange Law
- Foreign Exchange Management Act, 1999
5.6 Insolvency Law
- Insolvency and Bankruptcy Code, 2016
5.7 Insurance Law
- Indian Insurance Companies (Foreign Investment) Rules, 2015
- Insurance Act, 1938
- Insurance Ombudsman Rules, 2017
- Insurance Regulatory and Development Authority Act, 1999
- IRDAI (Insurance Web Aggregators) Regulations, 2017
- IRDAI (Registration of Insurance Marketing Firm) Regulations, 2015
- IRDAI (Regulation of Insurance Business in Special Economic Zone) Rules, 2015
- IRDAI (Third Party Administrators – Health Services) Regulations, 2016
- IRDAI Guidelines on Anti Money Laundering programme for Insurers
- IRDAI Guidelines on insurance e-commerce
5.8 Intellectual Property Law
- Copyright Act, 1957
- Copyright Rules, 2013
- Designs Act, 2000
- Designs Rules, 2001
- Patents Act, 1970
- Patents Rules, 2003
- Semiconductor Integrated Circuits Layout-Design Act, 2000
- Semiconductor Integrated Circuits Layout-Design Rules, 2001
- Trade Marks Act, 1999
- Trade Marks Rules, 2013
5.9 Technology Law
- Information Technology Act, 2000
- Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011
Become an expert with the Program in Fintech Law conducted by Asian School of Cyber Laws.
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