INTRODUCTION
India’s financial services sector has undergone a remarkable digital transformation over the past decade, driven by rapid fintech innovation, the rise of mobile-first banking, and increasing adoption of Artificial Intelligence (“AI”). One of the most visible outcomes of this shift is the emergence of robo-advisory platforms. They are algorithm-driven services that provide automated, data-based financial advice to customers. Unlike traditional financial advisors, robo-advisors rely on models that analyse user data, risk preferences, and market trends to suggest investment or financial planning strategies at scale. At the same time, banks and fintechs are no longer restricting themselves to standalone services like lending or payments. They are now building integrated digital ecosystems that allow customers to borrow, invest, and receive advisory services on a single platform.
This integration, however, raises pressing questions about regulation. India has the financial services sector operating under a scattered regulatory framework. Lending goes by the Reserve Bank of India (“RBI”), while investment advice is mostly administered by the Securities and Exchange Board of India (“SEBI”). Legal boundaries between them, however, become unclear when a single app offers both lending and robo-advisory services, creating uncertainty over compliance obligations, licensing requirements, and consumer protection norms.
WHAT IS ROBO-ADVISORY AND WHY IS IT BEING INTEGRATED
Robo-advisory refers to online platforms that provide financial advisory, investment suggestions, and portfolio management with almost negligible human involvement or supervision. AI, machine learning, and big data analysis are central to the functioning of these platforms, which gather information about an individual’s financial situation, investment goals, and risk profile. Robo-advisors then use these data to provide customised advice to participants, ranging from strategies for asset allocation to automated portfolio rebalancing. They owe their large following largely to their ease of access and efficiency. They deliver financial advice by the thousands and slashed the usual fees, thus appealing especially to younger demographics. On a global level, the likes of Betterment and Wealthfront have put the model to good use in the United States, while in India, Zerodha’s Coin platform, Paytm Money, and ET Money, among others, are able to democratise the process of investment planning through algorithmic advisory. Banks are too keen to get in on digital wealth management and have started embedding robo-advisory into their mobile applications, allowing customers to access loans, deposits, insurance, and investment advice in one place.
REGULATORY LANDSCAPE
India’s financial sector operates with multiple regulators. Each regulator has a specific role based on the type of financial activity. This setup is especially important when digital platforms combine lending, investment, and advisory services into one system.
Lending is something RBI looks after, especially when it comes to banks and Non-Banking Financial Companies (“NBFCs”). Also, it lays down rules for safe practices, protects consumers and maintains overall stability. With the rise of digital lending, the RBI came out with the Digital Lending Guidelines in 2022. These guidelines placed regulations on fair lending practices and clear disclosures of loan terms, storage requirements within India for data, and direct payments for loans from regulated entities to the borrower’s bank accounts. The guidelines made the Lending Service Providers (“LSPs”), usually fintech partners of NBFCs, undergo more stringent scrutiny than before, with clear agreements, complaint redressal mechanisms, and accountability for data privacy and cybersecurity. These steps reflect the focus of the RBI on protecting the interests of borrowers and ensuring market integrity in the swiftly evolving digital credit scenario.
Meanwhile, the SEBI oversees investment advisory services. According to the SEBI (Investment Advisers) Regulations, 2013, individuals and firms giving investment advice must register as Registered Investment Advisers (“RIAs”). These regulations require advisers to act in the best interests of their clients, ensure that advice is suitable, and be transparent about fees. SEBI also keeps an eye on conflicts of interest, especially when platforms sell products and offer advice at the same time.
KEY COMPLAINT CHALLENGES
While leveraging robo-advisory with digital lending offers efficiency and product innovation, financial services entities cannot ignore the compliance challenges that stem from combining data governance with algorithmic accountability from a consumer protection perspective. The main source of complexities arises from a joint regulatory environment of the RBI and SEBI, and alongside broad concerns relating to algorithmic accountability, data governance, and consumer protection, these functions result in ambiguity for financial institutions in navigating this dual regulatory regime. The ambiguity of licensing is one of the most pressing concerns. Under the RBI’s regulatory framework, these lending fintechs could be categorised as NBFCs, although investment advisory services shall be under SEBI regulation and must entail compulsory registration as a Registered Investment Adviser (“RIA”) under the Investment Advisers Regulations, 2013.
APPLICABILITY OF RBI AND SEBI REGULATIONS
If banks and fintechs add robo-advisory functions onto platforms that already permit lending and investment products, the challenge then goes beyond mere technology; overlapping regulations are the key challenge. India, in its financial sector has the RBI and DEBI as its two prime regulators. While they supervise certain exclusive sectors, the commission of credit, investment, and advisory services usually tends to blur these lines, creating confusion as to where the authority of either regulator ends and that of the other begins.
Lending and the bank regulatory environment are regulated by the RBI. It governs banks and NBFCs with a view toward ensuring responsible credit distribution and fair protection of the borrower against unfair practices. SEBI, on the other hand, manages the investment advisory sector through its RIA framework. This framework imposes duties on advisers and requires that advice meet a client’s financial needs and risk tolerance.
REGULATORY GAPS AND GREY AREAS
Although RBI and SEBI have clear roles, integrating robo-advisory with lending reveals regulatory blind spots. The biggest issue is the dual licensing problem. For instance, a fintech platform that provides loans would be categorised under the RBI’s NBFC schema. However, if it also provides investment advice, it would also require registration with SEBI as an Investment Adviser. This poses operational difficulties, particularly for new entrants, who are burdened by higher compliance costs and minimal rule-sets on which to base their strategies.
Audit standards are also a grey area. A third gap is the absence of regulatory coordination. RBI and SEBI work in different silos, with no structured mechanism to address hybrid services. For platforms involved in both advising and lending, the current situation leads to fragmented compliance requirements and a shroud of ambiguity on which regulator should lead in cases of disputes or enforcement actions. The absence of a single framework makes room for regulatory arbitrage, against which firms may take advantage in between rules.
GLOBAL BEST PRACTICES AND WHAT INDIA CAN LEARN
Other jurisdictions have begun addressing these challenges through more flexible regulatory approaches. The UK’s Financial Conduct Authority (“FCA”) pioneered regulatory sandboxes, allowing fintechs to test integrated products like robo-advisory plus credit scoring in a controlled environment under temporary exemptions. Singapore’s Monetary Authority (“MAS”) has adopted a similar model, encouraged experimentation while closely monitored risks. The US provides another lesson: while lending and advisory remain under separate regulators like SEC for advisory, CFPB for lending, both emphasise algorithmic accountability. The SEC has taken enforcement action against robo-advisors for inadequate disclosures, while the CFPB has scrutinised discriminatory lending algorithms. This dual but coordinated oversight ensures that firms cannot escape accountability by shifting between domains. For India, the key takeaway is that rigid compartmentalisation may not work for integrated platforms. Adopting sandbox models, or at least structured mechanisms for cross-regulatory consultation, would allow innovation while reducing uncertainty.
AMLEGALS REMARKS
The integration of robo-advisory with digital lending and investment services shows both the promise and the challenge of India’s fintech moment. It provides users with unmatched access to personalised, low-cost financial solutions within a seamless digital ecosystem. However, it also reveals the weaknesses in India’s fragmented regulatory system, where RBI and SEBI function separately and sometimes do not coordinate. Without better regulatory cooperation, fintechs face the burdens of dual licensing, gaps in accountability for algorithms, and conflicts of interest that might harm consumer trust. Ultimately, the success of this integration will rely not only on clear regulations but also on building consumer trust through transparency, fairness, and education, ensuring that digital finance promotes inclusion instead of confusion.
For any queries or feedback, feel free to connect with hiteashi.desai@amlegals.com