The Financial Stability and Development Council (FSDC) was constituted in 2010. As an apex body for coordinating financial regulatory agencies, FSDC has the authority and expertise to drive collaboration and synergies among stakeholders in the financial sector.

As the Indian economy expands and more citizens participate in formal economic activities, and with proliferation of emerging technologies, the number and volume of frauds could increase, a task that is daunting for financial regulators in their quest for consumer protection.

With more keypad Indians than formally literate ones, we have a duty to build a safer Indian ecosystem. Whether it’s using UPI for everyday transactions, facing phishing attacks, paying a heavy price for mis-sold financial products, or dealing with systemic fraud issues, the common man bears the cost when these concerns are not addressed promptly.

Reactive approach

Ideologically, India’s policy design needs to shift from the current reactive approach of post-event fraud detection, which relies on an already painfully slow legal system, to a proactive fraud-prevention framework and supervisory systems. This paradigm shift emphasises the importance of anticipating and mitigating fraud before it occurs, leveraging advanced technologies and robust regulatory practices to create a more resilient and trustworthy financial ecosystem.

In the financial space, with the right data standards, it is easy to quantify extent and impact, even in real time. There is a need for the Indian regulatory systems to move to a common data standard like XBRL across all regulators. This is the widest gap available now, and complicated by differing rigour and seriousness of regulatory supervision seen across the regulators. This needs probably stronger training and cultural alignment of different regulators to them being proactive supervisors of every financial activity, and not as a sheer annual exercise.

This also would mean that the inter-regulatory communication be agile. This is where a firmer and focused vision of preventive and proactive anti-fraud framework needs a resilient and an active FSDC. Fraud detection is both a science and an art. It involves a blend of analytical science, the application of advanced technologies, an understanding of human psychology and anthropology, and the assumption that “everything and anything can be tampered with.”

Emerging technologies, such as AI and quantum computing, present both opportunities and challenges. AI’s ability to analyse vast amounts of data can revolutionise fraud detection, while quantum computing threatens current encryption methods, potentially breaking every encryption key in use today. Datasets from such a system and flagged exceptions must form a repository. Machine learning must process all current datasets through this repository to isolate deviant patterns and observations. With challenges like deepfakes, fake news, cyber attacks, ransomware, and social media mishaps, addressing citizen grievances requires proactive regulatory systems.

While the common man may resign to fate, policymakers need to rise above this and adopt an overly cautious stance. By taking stronger supervisory actions to send the message that gaps must be closed, cracks must be healed, and vulnerabilities not be tolerated.

FSDC is uniquely positioned to spearhead the vision of building an ecosystem for fraud-free India. It can leverage its cross-functional mandate and cross-regulatory coordination to develop comprehensive strategies for fraud prevention, detection, and mitigation across various segments of the economy. Additionally, FSDC can facilitate the adoption of best practices, standardisation of regulatory processes, and implementation of cutting-edge technologies to enhance the resilience of India’s financial system.

Haribhakti is Independent Director on corporate boards, and Sridharan is Policy Researcher & Corporate Advisor

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