The Reserve Bank of India (RBI) had sought stakeholder comments on the "Draft Regulatory Framework for Account Aggregator Companies to facilitate Consolidated Viewing of Financial Asset Holding" of 3rd March 2016, which envisaged the creation of a new class of non-banking finance companies (NBFC) called Account Aggregators (Account Aggregators). In furtherance to the same, the "Master Directions Non-Banking Financial Company – Account Aggregator (Reserve Bank) Directions" were notified by the RBI on 2nd September 2016 (AA Master Direction). Although, the framework for Account Aggregators was conceptualised as early as March 2016, we understand from sources available in the public domain that so far, only 5 applicants have received an in-principle approval to operate as an Account Aggregator.

What is an Account Aggregator?

The concept of Account Aggregators is aimed at consolidating the financial data spread across various financial sector institutions, and regulating access to such financial data by acting as "consent brokers" ie, entities mediating consensual data transfer across financial entities in the nature of a bank or mutual fund company, termed as Financial Information Users[[1]] (FIUs). In this regard, Account Aggregators are registered entities that enable sharing of structured financial information post retrieving or collecting financial data pertaining to its customers from Financial Information Providers[[2]] (FIPs) inter alia, banks, asset management companies, depositories, insurance companies. The financial information collected by the Account Aggregator is subsequently consolidated, organised and presented to the individual customer or to a FIU, while maintaining a log of the consent given by the individual ("consent artefact") and enabling such individuals to revoke/manage their consent to such information sharing at any point in time.

How does it work?

An Account Aggregator allows an individual customer to transfer his/her financial information pertaining to the customer's various financial accounts (holding assets such as banks deposits, equity, mutual fund, pension funds etc) to any entity requiring access to such information (ie, the FIU). The categories of information that fall under 'financial information', as defined by the AA Master Direction, spreads across 19 varied classes of information, and pertains to inter alia, bank deposits, mutual fund units, insurance policies, and balances under the National Pension System, in addition to various other categories relating to banking and investments.

For sharing of such financial information, the FIU is required to initiate a request for consent, with details of the categories of information that are required, by way of any platform/mobile application run by the Account Aggregator. Such a request is received by the individual customer through the Account Aggregator, and the information is shared by the Account Aggregator, after the consent is duly obtained from the individual customer. The individual customer may also export such data in a structured format.

Approval Regime

Only NBFCs that are registered with RBI and have a minimum net-owned fund of ₹2 crores (c. $290k) are allowed to undertake the business of account aggregation. These NBFCs are required to first receive the RBI's in-principle approval, subject to any conditions that may be imposed, and are required to put in place the necessary technology, enter into operational tie-ups, and fulfil such conditions as imposed, within a period of 12 months from receipt of the RBI approval for grant of the Certificate of Registration to operate as an Account Aggregator. The technological evaluation of such applicants is presently expected to be carried out by Reserve Bank Information Technology Private Limited (ie, ReBit, the recently created IT and cyber security arm of RBI).

The Account Aggregator is also required to have in-place a board-approved policy for pricing of its services, and proper systems for disaster risk management and business continuity.

Data Security

The AA Master Direction stipulates that the business of an account aggregator will be entirely Information Technology (IT) driven, ie, it shall pertain to only financial assets whose records are stored electronically. Such Account Aggregators are required to adopt an adequate IT framework and interfaces to ensure a secure data flow from the FIP to its own systems and onwards to the FIU(s)[[3]].

In addition, the Account Aggregator is required to have adequate safeguards in its IT systems to ensure protection against any unauthorised access, alteration, destruction, disclosure or dissemination of its records and data. Further, an audit of 'Information System Audit' of the Account Aggregator's internal systems is also required to be undertaken at least once every two years.

Although India presently does not have a specific regulatory body governing the transfer or security of data, it is relevant to note that the Personal Data Protection Bill 2018 (PDP Bill), is expected to be tabled during the ongoing budget session of the Lower House of the Indian Parliament. The PDP Bill provides for creation of a national-level Data Protection Authority (DPA) which is empowered to supervise and regulate the processing, storage and transfer of all forms of data/information. It therefore remains unclear how the data security and data privacy obligations under the AA Master Direction will stack with the corresponding obligations once the PDP Bill is passed and/or the DPA is set up.

Commercial Viability of the Account Aggregation Model

As noted above, it appears that only 5 entities have so far been granted an in-principle approval by the RBI, and we understand that there continues to exist a concern over the viability of the account aggregation business model in the market.

The AA Master Direction specifies that any financial information relating to customers, which is accessed by the Account Aggregator from a FIP, shall not "reside" with such Account Aggregator[[4]]. The impact of this restriction is unclear, since it is widely understood that a copy of any data is required to be stored on the processing entity's servers in order for any computing/analytics or other forms of sophisticated processing to take place. The storage restrictions under thee AA Master Direction, therefore, imposes an obstruction on the processing and analysis of the data carried out by the Account Aggregator, to its maximum extent.

Further, unlike other NBFCs, the Account Aggregator is restricted from supporting any transactions to be made on its platform by the customers. Account aggregators may however deploy their investible surplus in instruments, albeit for trading purposes[[5]].

Concluding Remarks

The Account Aggregator ecosystem was introduced with the aim of solving the problems of data portability in banking, investment, insurance and other sectors, but the question of whether the account aggregation business model shall emerge as a viable model will largely hinge on the successful implementation of the consent architecture envisaged under the AA Master Direction, and the terms of the contractual arrangements that are entered into with the various regulated entities.

Further, while the Account Aggregator ecosystem remains primarily a technology platform for financial information and consent sharing, which requires significant IT capabilities, with the introduction of the PDP Bill, it is unclear how the data privacy and security norms introduced with the AA Master Directions are to be read harmoniously with the PDP Bill and the norms that may be introduced by the DPA. Further, we understand that the restrictions imposed on storing financial information, facilitating customer transactions, and providing other financial services to its customers, may also hinder the adoption of the account aggregation model.

At present, we note that no entity has been accorded the final Certificate of Registration by the RBI, and it remains to be seen how the Account Aggregator ecosystem shall finally be implemented and whether the same will help in filling the information gaps prevalent across various data systems controlled by different regulated entities.

[1] Clause 3 (xii) of the AA Master Direction provides the meaning of the term "Financial information user" in following terms:

"Financial information user" means an entity registered with and regulated by any financial sector regulator.

[2] Clause 3 (xi) of the AA Master Direction provides the meaning of the term "Financial information provider" in following terms:

"Financial information provider" means bank, banking company, non-banking financial company, asset management company, depository, depository participant, insurance company, insurance repository, pension fund and such other entity as may be identified by the Bank for the purposes of these directions, from time to time.

[3] Clause 9(a) of the AA Master Direction.

[4] Clause 5(g) of the AA Master Direction.

[5] Clause 5(f) of the AA Master Direction.

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