Legal Challenges faced by FinTech Companies in India: Best Corporate Lawyer Advice in Delhi NCR
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Financial technology (“FinTech”) companies have been emerging in the Indian market rapidly, and with that, the traditional methods of banking and providing financial services have been disrupted. It’s a lucrative line of work and those planning to set up their FinTech start-ups or companies, must also keep in mind various legal issues related to the FinTech companies.
Corporate Legal Solutions to Problems faced by FinTech Companies in India
There are numerous legal issues that a FinTech company faces while operating. These are as follows-
Data Protection and Cybersecurity- To shape and customize their services in accordance with the market trends and demands, FinTech companies collect and process great amounts of data. But with great informational power comes great responsibility. The theft of this data can lead to disrupting business activities, tarnishing the reputation, and dissipating the trust of customers in the company. So, it is very necessary for FinTech companies to ensure that they are always following the data protection laws and shall also be transparent regarding their security practices.
Regulatory Compliances– There are various regulatory bodies in India for FinTech companies like the Reserve Bank of India (RBI) and National Payments Corporation of India (NPCI) etc., FinTech companies have to ensure that regulations that are outlined by these bodies must be complied with. There are too many regulations and formalities before a FinTech company enters the Indian Market. They act as massive restrictions for the new FinTech start-ups. Also, many FinTech start-ups deal directly with banks and other financial institutions, which essentially needs an additional layer of compliance requirements to be followed by these start-ups. That is also to be kept in mind while dealing directly with these financial institutions.
Intellectual Property Concerns– Technological innovation and software are the core of FinTech companies and FinTech investors are particularly interested in the company’s underlying intellectual property and technology. The issue is there is very limited patent protection for automated methodologies. It means that those inventions merely performed by computer which were earlier performed manually. Besides this, Section 3 (k) Of the Patents Act, 1970 states that computer programme is not protected under the said Act. Hence, it has become more difficult to obtain and enforce patents for FinTech inventions.
Smart Contracts– Smart contracts are self-executing contracts where the terms of the agreement between the parties (buyers and sellers) are directly written into the lines of code. The use of smart contracts for trade finance may imply several risks from a legal as well as practical perspective. A smart contract may not be enforced in all the jurisdictions involved. So, it raises the situation of uncertainty.
Misleading and Deceptive Conduct– FinTech companies need to consider avoiding any misleading and deceptive conduct as they are prohibited from engaging in specific forms of misleading conduct such as innocent misstatements, negligent misrepresentations; or deliberate deceit. This may lead to penalties like damages, substantiation notices, injunctions, public warning notices, undertakings; or compensatory orders. To avoid these penalties FinTech companies must ensure that it undergoes due diligence with their operation when engaging with relevant parties.
Robo-Advisors and Identifying Liabilities– FinTech companies are becoming more dependent on Robo-advisers (digital platforms that enable automated, algorithm- driven financial planning services without the intervention of mankind) to provide support in financial services. The issue with this technology is that it may lead to issues with identifying liability. Even though Robo-advisers are deemed to be more efficient than a human providing financial advice but in case of common issues such as errors in their functions and operations, it may be difficult to define the liability of these Robo-advisers. So, it is important for FinTech companies to be aware of the potential legal implications of utilising such platforms in their business structure.
Trust in Cash- Other than legal issues there are behavioural issues too for FinTech companies, as people for ages have used cash in every day transactions, so they have trust in cash and prefer transactions through cash rather than the transactions through a modern way of transactions like UPI payments or mobile wallets etc. FinTech companies have to deal with this issue too for growth in the Indian market.
Unbanked and Underbanked Population- One of the reasons of the stagnant growth of FinTech start-ups in the Indian market is poor infrastructure and poor literacy level. even today a large part of the Indian population is unbanked, and thus they prefer cash transactions rather than online transactions.
Conclusion
FinTech companies are subject to stringent regulations in India. Therefore, it is necessary for these companies or start-ups to keep in mind regulatory, legal and, intellectual property challenges that will need to be sorted out further for the development and growth of the FinTech sector.
Authored By: Adv. Anant Sharma & Anjali Swami
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