There is a case to regulate crowd funding: RBI deputy governor S S Mundra

By Pratik Bhakta

MUMBAI: The Reserve Bank of India has called for a need to bring legislative changes to regulate the aggregators' electronic platforms to protect consumer interest.

"Crowd sourcing and peer to peer transactions are near impossible to regulate, hence the Reserve Bank wants to push for appropriate legislative changes to regulate the aggregator's electronic platform," said S S Mundra, deputy governor, RBI at the annual FIBAC summit today.

The comments from the DG comes within a week of governor Raghuram Rajan raising a red flag about crowd sourcing and crypto currency. Crowd funding is defined by Sebi as the gathering of funds from multiple investors through a web based platform for a specific creative project or business venture or for some social cause.

Mundra pointed out that though these innovative and disruptive technologies are in their infancy they will assume importance in the near future. "Though as regulator we are not concerned about the manner in which finance is raised, we are concerned about grievance redressal and disaster recovery plans so that an orderly growth of the new system can be ensured," he said.

Last week, Rajan while raising concern had said, "One of my worries about crowd funding is when it works, it's good, but when you have to recover (the important questions are) who recovers and how does it happen, especially in an environment where enforcement is difficult."

On virtual currency or bitcoins, Mundra said that though these types of unregulated money gives speed and anonymity but they are too risky because of lack of regulation protection from volatility and money laundering. Mundra stressed the need to have co-ordination among global regulators.

"These are the kinds of global innovations and by very nature and design.....it will be something which would need a global coordination rather than a framework which can be any location specific," said Mundra.

Venture capitalists (VCs) and private equity investors (PE) remain protected because of their influence on the company's management and board, but that kind of protection is absent in crowd-funding where retail investors participate.