Regulatory Compliance For Startups: A Step-by-Step Guide
Navigating sudden regulatory changes is a challenge that many startups in India face, and it can significantly impact their operations and plans. Recently, several regulatory developments have raised concerns among startups, including the imposition of a 28% GST on online gaming, increased scrutiny of fintech business models, and the need for self-regulation in the fintech sector.
A survey conducted in August 2022 revealed that 49% of startup founders believe that abrupt regulatory changes have a negative impact on Indian startups. Fintech founders expressed even more pessimism due to the intense scrutiny of their business models. Investors, too, expressed concerns about the negative effects of sudden regulatory changes on the tech sector.
The proliferation of regulations in areas like buy now pay later (BNPL), digital lending, payments banks, credit cards, and neo-banking has left many startups uncertain about their future. The involvement of multiple regulatory bodies, including RBI, SEBI, IRDA, and IFSCA, adds complexity to the regulatory landscape.
One notable change was the imposition of a 28% tax on online gaming, casinos, and horse racing by the GST Council. This decision has raised concerns about its impact on online and real-money gaming startups in India, possibly leading some to explore opportunities overseas.
However, regulations aren”t always detrimental to startups. The Reserve Bank of India (RBI) established a regulatory sandbox in 2019 to encourage innovation in fintech products and solutions. This allowed fintech startups to test their offerings in a controlled environment before launching them in the market. In some cases, regulatory challenges have led to improved safety standards and benefits for users and partners.
Startups can navigate these regulatory challenges successfully by staying Informed and do risk Assessment. Startups must keep a close eye on regulatory developments in their industry. Regularly assessing regulatory risks can help identify vulnerabilities and develop strategies to mitigate them. Contingency plans that consider different scenarios are essential for startups in sectors prone to regulatory changes.
Engage with Regulators: Building relationships with regulatory authorities is crucial. This engagement can help startups voice industry concerns and influence policy decisions. Lobbying for favourable policies and regulations can proactively shape the regulatory environment in their favor.
Legal Counsel and Compliance: Access to reliable legal counsel is vital for understanding regulatory obligations and navigating complex regulatory landscapes. Strict compliance with existing regulations not only reduces the risk of penalties but also helps build a good reputation with regulators.
Network: Building a strong network within the industry and among startups facing similar regulatory challenges is essential. Sharing insights and experiences can be invaluable, and costs can be shared among peers.
Financial Planning: Maintaining a healthy financial cushion is expedient for startups to absorb unexpected costs that may arise due to regulatory changes. Financial resilience can be vital in navigating challenging times.
Startups in India need to be resilient and proactive in addressing regulatory changes. Seeking professional advice, staying informed, networking, and being agile and adaptable are essential for successfully navigating the regulatory landscape. Ultimately, startups should consider regulating themselves to some extent, as it may make more sense than constantly trying to make sense of ever-evolving regulations.
