Banks remain responsible for risks even when services outsourced to fintechs: RBI Deputy Governor

Reserve Bank of India RBI Deputy Governor Swaminathan J has said that push towards digitalisation aimed at enhancing customer experience should not come at the cost of safety checks and banks and financial institutions must remain responsible for risks associated with their operationsA practical question therefore is that whenever a step is removed or modified in the name of speed scale or customer convenience what risk was that step controlling and where does that control now reside If the answer is not clear process simplification may in fact be control dilution he said at the FE Modern BFSI Summit 2026 in Mumbai on October 15The deputy governor while noting that frictionless onboarding digital public infrastructure AIled underwriting and autonomous workflows can reduce costs improve customer experience and extend financial services to customers who were previously underserved said However from a supervisory perspective not every friction in finance is inefficiencySome frictions perform an important control function An independent verification a makerchecker arrangement or a coolingoff period may add time to a process but they can also reduce the probability of error fraud or adverse selection he saidHe said that technology may allow some of these steps to be delayered redesigned or automated but before removing them an institution should understand the function they were performingIf a manual check is replaced by an algorithm or underwriting becomes instantaneous the underlying risk does not disappear the control must therefore evolve with the process In supervisory terms the control environment must remain commensurate with the pace and nature of growth he saidOutsourcing doesnt transfer accountabilityHe further said that institutions must remain responsible for work carried out through third partiesA loan may be sourced through a fintech a product distributed through an external platform or a decision supported by a thirdparty model The process may be outsourced but the responsibility associated with the institutions licence remains with the regulated entity he saidTrust needs to be preservedSwaminathan emphasised on preserving the trust and pushed for continuous investment in it and said the intangible asset can erode through customer attrition litigation regulatory penalties and reputational damage at the slightest weaknessOne area wherein trust is tested is the sale of financial products Technology allows institutions to understand customers better reach them more frequently and tailor products with finer precision These capabilities can improve customer outcomes but they can also sharpen the consequences of poor incentive design When the pressure to complete a transaction becomes stronger than the obligation to assess whether it serves the customerrsquos needs trust can deteriorate even while business volumes are rising he saidHe further said as institutions gain the ability to personalise products and services in real time the question is not only whether consent has been obtained but whether the use of that data is consistent with what the customer would reasonably expectThe more powerful the analytical capability the greater the need for discipline in how that capability is exercised he saidCustomer complaints a source of risk intelligenceHe added that customer complaints should not be seen as services issues to be resolved but they can be an important source of risk intelligenceA pattern of complaints may reveal weaknesses in product design incentive structures digital journeys or thirdparty arrangements Institutions that learn from grievances rather than simply dispose of them are likely to identify emerging problems earlier he saidAmid the rising cases of fraud Swaminathan highlighted the systemwide implication of the same stating that the customer may be unable to distinguish between the institution where the fraud originated the institution through which the funds moved and the institution that may have hosted a mule accountFrom the customerrsquos perspective the financial system has failed Weak controls in one part of the system can therefore impose a trust cost on the whole system he said