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Abstract

The Financial Technology (“FinTech”) sector in India has stood at the forefront of global financial innovation. However, this rapid expansion has also exposed systemic vulnerabilities that threaten the stability of the financial ecosystem. The Synapse bankruptcy in the United States serves as a cautionary tale, revealing the cascading risks posed by FinTech failures, including concentration risks, spillovers, and cyber vulnerabilities. India’s regulatory framework remains ill-equipped to address these challenges, leaving critical gaps in insolvency management for FinTech entities. This article undertakes a comprehensive analysis of systemic risks arising due to financial distress and insolvency situations in FinTech and proposes a multifaceted framework tailored to mitigate the same. Central to this framework, the authors employ management-based regulations from regulatory theory as the basis to strengthen corporate governance in pre-insolvency phase of FinTech, mandating key responsibilities of directors, and robust contractual safeguards between banks and the FinTech sector. This article also recommends tailored proposals for efficient resolution of FinTech post insolvency initiation. With actionable insights for the Indian regulators – particularly, the Reserve Bank of India and the Insolvency and Bankruptcy Board of India – this article ushers the urgency of proactive regulatory adaptation to secure India’s financial ecosystem in an era of rapid digital transformation.

Digital Object Identifier (DOI)

10.55496/TIGM2656

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