Regulators don’t care whose fault it was

This past week felt unusually calm - and in a good way.

Lately, I’ve been connecting with more international lawyers, particularly in Japan. With UPI’s expansion and the growing movement of Indian fintech models abroad, collaboration between Indian and Japanese law firms is no longer just a possibility. It’s becoming a strategic necessity.

What’s been most interesting is how few lawyers abroad truly invest in building their personal brand. It’s surprising because in both law and fintech, reputation compounds just like capital.

Those who show up regularly, share their insights, and explain their expertise clearly tend to attract opportunities naturally - without having to chase them.

That’s been my quiet focus lately: showing up consistently and doing the work that builds credibility over time.

Lesson of the Week: The Regulator Doesn’t Care Whose Fault It Was

If there’s one lesson I’ve relearned this week, it’s this - regulators don’t care about internal blame.

They don’t want to hear that it was your vendor’s fault, or your partner’s subcontractor who slipped up, or that it was a “minor compliance miss.” None of that matters once things go wrong.

When regulatory issues surface, they look for one thing, whose name is on the license.

That’s the entity that carries the weight, no matter how many layers of partnerships or outsourcing stand behind it. And in fintech, that’s exactly where the hammer falls.

The Myth of Shared Responsibility

A mistake I see often is companies assuming that responsibility is shared when they enter partnerships or outsource operations. They think, “We’ve divided the roles, so the blame will be divided too.”

But that’s not how regulators work. The RBI or any similar authority doesn’t divide blame — they assign accountability.

So, even if:

a) Your partner mishandled KYC,

b) Your payment processor leaked customer data, or

c) Your third-party API introduced risk,

You, the license holder, will still be the one answering questions, facing penalties, or even risking suspension.

This might sound harsh, but it’s the reality of regulated sectors. You can delegate tasks, but you cannot delegate accountability.

Contracts Should Be More Than Role Sheets

This is why your partnership contracts must go beyond simply “outlining roles.” They need to actively protect you when someone else’s mistake triggers regulatory fallout.

Here’s how you can build that protection into your agreements:

1. Define responsibility clearly.

Spell out exactly who handles what - KYC, customer onboarding, reporting, data management, audits. Every duty should be in writing, not implied.

2. Add indemnity clauses.

Your contract should state that if a partner’s non-compliance leads to penalties or investigations, they bear the financial and reputational cost, not you.

3. Demand compliance proof.

Don’t rely on verbal assurances. Ask for tangible evidence - compliance reports, audit certificates, or third-party assessments. It shows oversight and helps you defend your position if needed.

4. Retain cooperation rights.

During investigations, you’ll need access to data and systems controlled by partners. Ensure your contracts give you the right to obtain that access quickly when required.

Because when regulators come knocking, they’re not interested in stories or verbal explanations. They’re interested in documentation, what’s written, signed, and enforceable.

The Business Reality Behind Compliance

In fintech, regulatory fines aren’t always fair. Sometimes, they arise from situations beyond your control. But your contracts can make those outcomes predictable, and manageable.

The goal isn’t just to avoid blame, but to design your agreements in a way that ensures fairness and accountability. When something goes wrong, you shouldn’t be left alone carrying the entire burden of a partner’s oversight.

That’s where contract precision becomes your safety net.

TL;DR

a) Regulators don’t divide blame - they assign it to whoever holds the license.

b) Even if your partner or vendor caused the issue, you’ll be the one facing the regulator.

c) Define roles clearly, add indemnity clauses, and demand compliance evidence.

d) Keep cooperation rights to ensure you can access critical data during investigations.

Fines in fintech may not always be fair, but your contracts can make them predictable and manageable.

Conclusion

Regulatory compliance isn’t just about following the rules — it’s about anticipating how accountability works when things go wrong.

The RBI or any regulatory body won’t accept excuses or internal finger-pointing. What matters is preparation - through contracts that define duties, share liability fairly, and create clear channels of accountability.

In a space as tightly monitored as fintech, your greatest strength isn’t just trust in your partners - it’s having the documentation to prove you planned for every scenario.

Because regulators may not care whose fault it was, but your contracts absolutely should.