India needs reforms in the FinTech Sector for Financial Inclusion: Nishith Desai Partner, Pratibha Jain at World Economic Forum, Davos

Pratibha Jain, Founding Partner & Head of the New Delhi Office of Nishith Desai Associates recently spoke on the need for ease of regulations for fin-tech in India at the recently conducted World Economic Forum in Davos Switzerland. Jain opined that the measure is needed to promote financial inclusion and to strengthen India’s position as a leader in technological development..At Davos, Jain spoke in the thematic session entitled: “Anti-Money Laundering and Counter Terrorist Financing (AMLCTF) System in Modern FinTech Industry”. Jain was the only Indian Corporate Law Firm Partner invited to speak at the event during the Caspian Week held between January 21-24..Jain's observations were made in the backdrop of the debate over banning of crypto currencies in India, with the RBI circular prohibiting entities that it regulates, including banks from providing services to persons or entities dealing in or settling crypto currencies, and its challenge before the Supreme Court of India by the Internet and Mobile Association of India..The RBI in its affidavit to the Supreme Court had stated that, "It is an admitted fact that VCs [virtual currencies] have been used to purchase illegal and illicit goods ranging from guns and ammunition to drugs”, while citing national security concerns for their move..Speaking in Davos, Jain said,.“While regulations are critical to ensure fin-tech solutions are not used for money laundering or terrorism financing, banning new technologies or rule based approach to laws relating to fintech will prove to be counter productive.”.On the legal and policy implications for banning cryptocurrency, Jain observed,.“As technologies are still evolving, prescriptive laws will keep becoming obsolete as technologies change, and banning technologies like cryptocurrencies will only push the market for them to develop outside India. AML/CTF regulations are undoubtedly very important for a country like India where the parallel cash economy and terrorism financing - both of which are a major challenge to not only national security, but also for economic growth and development. In that sense they help protect the rule of law and democracy. They are also important for international security.”.Giving a detailed overview of the issue, and it particular the policy implications, Jain said,.“I would argue that such regulations need to be balanced and principle-based rather than rule-based, and we should seriously consider three issues: first, the efficacy of fintech companies to provide solutions for financial inclusion. According to a 2018 report released by the World Bank, India is home to the second-largest unbanked population in the world.Fin-tech can significantly help with financial inclusion by obviating the need for brick and mortar banks to serve the traditionally underserved and unserved population in India. Digital banks, digital lenders, digital insurers - all can help fill this gap. But, this requires government to promote innovation and the ease of doing business for these companies, especially when the amounts in question are not too significant.Having strict AML laws applicable to these transactions without the availability of Aadhar stack makes it more cumbersome for these companies to operate compared to banks.".She added,.“Second, myriad of laws that don’t allow for effective transfer between nations or stop technological development, for example, leading to trends towards banning crypto can be a blow for the ease of global financial transactions.”.Further that,.“Third, the safeguards against abuse of such laws by governments is also an area of concern. The definition of the proceeds of crime under Prevention of Money Laundering Act (PMLA) is very broad that even a genuine purchase of property by a bank in an auction can run the risk of being accessed to by authorities as proceeds of crime. Further, under the PMLA in India, bail is not allowed unless government gets a chance to oppose the bail and property can be attached without filing an FIR.When laws don’t have the checks and balances to ensure basic fundamental rights are protected, such laws are susceptible to be misused for political motivated prosecutions. Unfortunately the efficacy of these laws is not yet proven.”.Pratibha Jain is a corporate lawyer registered for pursuing legal practice in India and the USA. She is admitted to to the Bar Council of Delhi, India and the Bar of the State of New York, USA. She is an Aspen Fellow and a law graduate from the University of Delhi, University of Oxford and Harvard Law School..Jain has worked as a corporate lawyer in many jurisdictions including in the USA, Japan, Hong Kong and India. She has straddled across the world of international law firms and investment banking, having worked in two US-based leading law firms, Sullivan & Cromwell in their offices in New York, Tokyo and Hong Kong and Skadden Arps in their Hong Kong Office. She also worked in Goldman Sachs in their offices in Hong Kong and Mumbai, before moving to New Delhi to establish Nishith Desai’s Delhi Office.