Reserve Bank of India warns of cyber security, frauds due to digitisation

The Reserve Bank of India (RBI) report on Currency and Finance – 2023-24 has cautioned against risks related to cybersecurity and frauds due to increase in digitisation along with risks to financial stability.

However, it has acknowledged benefits like innovation, expanding access, enhancing competition and reducing intermediation costs, among others.

“Amid several benefits, … digitisation also brings new challenges in terms of complex financial products, greater interconnectedness, cybersecurity risks, financial frauds, and customer protection, with implications for macrofinancial stability,” the report said.

It added, “These issues need to be addressed to realise the full potential of financial digitisation.”

The report said digitisation can also bring new risks and challenges for customer protection and financial stability.

“By integrating digital payment systems and FinTech innovations into its regulatory framework, the Reserve Bank has maintained financial stability while fostering economic growth,” it said.

According to a survey conducted in March 2024, covering 25 scheduled commercial banks (SCBs) and 68 non-banking financial companies (NBFCs), respondents said digitisation could pose financial stability concerns owing to cybersecurity threats, data breaches and the speed at which information and rumours can flow through the system.

“Cyber fraudsters are increasingly targeting financial institutions instead of end users globally,” the report said.

Cyber risks and frauds, third-party risks, and data privacy issues were seen as the most significant risk factors by banks and NBFCs.

The report pointed out that the regulatory approach has been to strike a balance between mitigating the potential risks without impeding financial innovations.

The respondent banks and NBFCs identified cybersecurity, data privacy and third-party risks as key challenges and indicated they are largely equipped to deal with such risks.

The surveyed regulated entities favoured regulation of FinTech firms for harnessing the benefits of digitisation and securing financial stability in India, the report said.