‘Digitalisation is blurring traditional regulatory boundaries’: RBI Deputy Governor SC Murmu

Mumbai: Emphasising the rapid transformation of the financial ecosystem driven by digitalisation, RBI Deputy Governor Shirish Chandra Murmu said regulators must adopt agile, forward-looking and risk-based approaches to protect financial stability while supporting innovation.

Addressing the 3rd Annual Global Conference of the College of Supervisors at the RBI, Murmu said digitalisation is increasingly blurring traditional regulatory boundaries. Many financial services are now being unbundled and delivered through non-financial platforms involving both regulated and unregulated entities, often falling outside the RBI’s existing regulatory framework.

“Oversight of such activities is frequently fragmented among multiple financial and non-financial regulators, with no single authority having a comprehensive, end-to-end view of the full activity chain and associated risk transmission pathways,” he said. As a result, regulatory actions that are sound within individual mandates may still fall short in addressing broader, cross-cutting risks. He added that fragmentation across jurisdictions further complicates supervision of digital financial activities.

Differences in legal frameworks, institutional mandates and domestic policy priorities can lead to divergent regulatory approaches, creating scope for regulatory arbitrage and uneven risk management.

This, he noted, highlights the importance of effective cross-border cooperation. Raising financial stability concerns, Murmu flagged emerging systemic risks stemming from growing reliance on cloud services, algorithms and third-party technology providers. He stressed that accountability for technological outcomes must remain firmly with regulated entities, even when processes are outsourced or automated.

“Digital innovations such as cloud adoption and decentralised finance introduce new and potentially systemic risks due to increased interconnectedness with unregulated entities, single points of failure, opacity of arrangements and diluted accountability,” he said.

He cautioned that systemic fragility can build up even when no single entity appears weak, requiring regulators to look beyond entity-level soundness and focus on concentration risks, limited substitutability and disruptions to widely used services.