The Act adds another layer of regulation, particularly focusing on data protection and privacy. This intersection requires financial sector participants to adopt a nuanced approach to comply with the regulation.
In an era where technology plays a central role in the 21st century, India’s Data Protection regulation highlights the country’s commitment to establishing a robust data privacy framework. Developing effective privacy governance programs is not just a necessity for managing reputational and business risks; it is also a fundamental component of creating a transparent and sustainable organization for the future.
The Digital Personal Data Protection Act of 2023 is India’s first data protection act, and it establishes a framework for the processing of personal data in India. In this explainer, we look how it will impact the FinTech sector.
What is the Digital Personal Data Protection Act of 2023 (DPDPA), and how does it affect the Financial Services sector in India?
The DPDPA is a significant piece of legislation in India aimed at protecting personal data and giving individuals more control over their data. It has a substantial impact on the financial services sector due to its stringent guidelines on customer data protection and privacy, among other aspects.
How does the DPDPA intersect with the financial sector’s existing regulatory framework?
The financial services sector in India is already highly regulated, with guidelines covering customer protection, data privacy, outsourcing, information security, and cyber risk management. The DPDPA adds another layer of regulation, particularly focusing on data protection and privacy. This intersection requires financial sector participants to adopt a nuanced approach to comply with the DPDPA, which may be more mature than that of unregulated entities.
What key functions and processes within Financial Services firms are impacted by the DPDPA?
The Act will impact risk management as financial services firms rely on customer data to assess various risks, including credit risk, insurance underwriting, and fraud risk. The DPDPA mandates firms to assess data collection, legal basis, and obtain customer consent, potentially affecting risk assessment and product pricing. The financial service firms often outsource activities, including customer data management. The DPDPA requires firms to review outsourcing arrangements and align governance frameworks to manage compliance more effectively. Also, handling customer data throughout their journey, from onboarding to relationship cessation, must adhere to DPDPA’s requirements, affecting various aspects of customer management. Product design must now emphasise data protection, transparency, user consent, and data usage policies. The Act’s focus on data protection influences how financial services firms manage IT systems and safeguard customer information, requiring investments in cybersecurity measures.
How does the DPDPA impact FinTech companies in the financial sector?
FinTech companies, which partner with regulated financial entities, will now be classified as ‘data processors’ and must comply with DPDPA requirements. The partnership model between regulated entities and FinTechs is expected to shift, with more significant oversight on data governance practices. FinTechs with robust data governance processes will be preferred partners in this new data regime.
How can financial institutions benefit from embracing the DPDPA’s provisions?
By embracing the DPDPA, financial institutions can enhance data security, build customer trust, and lead in responsible data management. Compliance with the Act allows them to navigate evolving regulatory landscapes and position themselves as protectors of customer data in an increasingly data-driven world.
