Introduction
On 13 May 2026, RBI introduced a new framework for facilitating outward remittances through non-bank entities in partnership with Authorised Dealer (AD) Category-I banks. The significant change was simple: non-bank entities no longer need prior RBI approval for such tie-ups. Instead, banks can enter into these arrangements within a prescribed regulatory framework.
This could appear to be merely another regulatory relaxation at first. However, it poses a much more significant question: should regulation become simpler or just more intelligent as fintech simplifies financial services?
From Permission to Participation
Fintech platforms wanting to facilitate outward remittances through an AD Category-I bank faced an additional regulatory hurdle: the arrangement itself required RBI’s prior approval. That meant that even where the bank and the fintech were otherwise ready to work together, the partnership could not simply proceed without regulatory clearance. The new framework changes that approach. Instead of asking RBI for permission every time such a partnership is proposed, eligible non-bank entities can now work with AD Category-I banks subject to the conditions laid down by RBI.
The RBI has not abandoned regulation. Instead, it has shifted part of the accountability from obtaining prior authorization to maintaining compliance. While the AD bank continues to be the regulated organization between the customer and the foreign exchange system, the fintech sector has more space to develop. This is particularly relevant because the customer may not even realise where the “banking” part of the transaction begins. For them, the remittance may simply involve opening an app, entering the beneficiary details, checking the exchange rate and pressing “send”. Behind that seemingly simple transaction, however, sits a complex FEMA and banking framework.
Easier for Fintech, But Not a Free Pass
The relaxation does not mean that fintech platforms can now operate without regulatory safeguards. AD Category-I banks continue to be responsible for ensuring compliance with the Foreign Exchange Management Act, 1999, applicable RBI directions, KYC and anti-money laundering requirements, customer protection standards and cybersecurity requirements. The framework also requires transparency regarding exchange rates, charges and transfer timelines.
The fact that remitter monies cannot be routed through third-party accounts in India is one very crucial safety measure. This is important because the ease of digital payments can occasionally mask the actual flow of money. Traceability becomes a regulatory need rather than just a technological one when a transaction crosses international borders. Therefore, the RBI’s diminution of expectations is not the true change. It has changed when and how those expectations are enforced.
But Who Takes Responsibility When Things Go Wrong?
This is where the framework becomes particularly interesting. A customer making a remittance may interact almost entirely with a fintech platform. The platform may handle the interface, customer communication and transaction journey, while the AD bank technically facilitates the foreign exchange transaction. Suppose a customer is misled about charges, a transaction is incorrectly processed, customer data is compromised or a remittance is delayed because of a compliance failure. Will the customer see the fintech as responsible, the bank as responsible, or both. RBI’s framework places significant responsibility on the AD bank. This makes sense from a regulatory perspective because banks remain the entities authorised to deal in foreign exchange. However, it also means that banks cannot treat fintech partnerships as merely technological arrangements.
Due diligence, monitoring, contractual safeguards and clear allocation of responsibilities become essential. For fintechs, this could mean that the easier entry into the market comes with a different kind of responsibility: the need to operate within the bank’s compliance architecture rather than outside it.
Is This Deregulation or Just a Shift in Control?
RBI appears to be moving towards a model where regulation does not necessarily prevent a transaction from happening but ensures that someone remains accountable when it does. This is an increasingly relevant approach for fintech regulation. Financial services are no longer delivered exclusively by traditional banks. Technology companies, payment platforms and digital intermediaries are becoming part of the financial chain. Requiring regulatory approval at every stage may slow innovation, but removing oversight altogether can create obvious risks.
The middle path is therefore risk-based regulation: let innovation move quickly, but make accountability move with it. For consumers, the benefits could be significant. For Indians sending money overseas, more fintech-bank alliances might mean greater flexibility, possibly reduced fees, and a seamless experience. Eliminating an extra permission layer could encourage the introduction and expansion of remittance solutions for companies.
But the success of the reform will ultimately depend on implementation. If banks respond by creating their own layers of excessive internal approvals, the practical benefit of RBI’s relaxation could be limited. However, the dangers of fraud, money laundering, cybersecurity breaches, and improper use of remittance channels may rise if compliance becomes overly lax.
AMLEGALS Remarks
RBI’s May 2026 framework reflects a broader regulatory trend: facilitating innovation by removing unnecessary procedural barriers while retaining accountability within the regulated financial system. It recognises the commercial reality that customers increasingly access financial services through fintech interfaces rather than traditional banking channels. The reform is therefore less about deregulation and more about redistribution of regulatory responsibility. Fintechs receive greater room to participate, while AD banks remain the principal compliance anchors.
Its long-term success will depend on whether this balance can be maintained. A flexible regulatory framework must still ensure that cross-border payments remain transparent, secure and traceable. If RBI’s approach succeeds, the reform could provide a useful model for regulating fintech partnerships more broadly: fewer ex ante permissions, but stronger continuing accountability.
For any queries or feedback, feel free to connect with Dhwani.tandon@amlegals.com