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‍Brief Overview of the EU AI Act

The EU AI Act, Regulation (EU) 2024/1689, was officially published in the EU Official Journal on 12 July 2024. This landmark legislation on Artificial Intelligence (AI) will come into force just 20 days after publication, setting harmonized rules across the EU. It amends key regulations and directives to ensure a robust framework for AI technologies.  The AI Act, a set of EU rules governing AI, has been in development for two years and now, the EU AI Act enters into force across all 27 EU Member States on 1 August 2024, with certain future deadlines tied up and the enforcement of the majority of its provisions will commence on 2 August 2026. The law prohibits certain uses of AI tools, including those that threaten citizens' rights, such as biometric categorization, untargeted scraping of faces, and systems that try to read emotions are banned in the workplace and schools, as are social scoring systems. It also prohibits the use of predictive policing tools in some instances. The law takes a phased approach to implementing the EU's AI rulebook, meaning there are various deadlines between now and then as different legal provisions will start to apply.

The framework puts different obligations on AI developers, depending on use cases and perceived risk. The bulk of AI uses will not be regulated as they are considered low-risk, but a small number of potential AI  use cases are banned under the law. High-risk use cases, such as biometric uses of AI or AI used in law enforcement, employment, education, and critical infrastructure, are allowed under the law but developers of such apps face obligations in areas like data quality and anti-bias considerations. A third risk tier also applies some lighter transparency requirements for makers of tools like AI chatbots.

In case of failure to comply with the Act, the companies in the EU providing, distributing, importing, and using AI systems and GPAI models, are subject to fines of up to EUR 35 million or seven per cent of the total worldwide annual turnover, whichever is higher.

Key highlights of EU AI Act Provisions

• The AI Act classifies AI according to its risk. It prohibits Unacceptable risks such as social scoring systems and manipulative AI. The regulation mostly addresses high-risk AI systems.
• Limited-risk AI systems are subject to lighter transparency obligations and according to the act, the developers and deployers must ensure that the end-users are aware that the interaction they are having is with AI such as Chatbots and Deepfakes. The AI Act allows the free use of minimal-risk AI. This includes the majority of AI applications currently available in the EU single market like AI-enabled video games, and spam filters, but with the advancement of Gen AI changes with regards to this might be done. The majority of obligations fall on providers (developers) of high-risk AI systems that intend to place on the market or put into service high-risk AI systems in the EU, regardless of whether they are based in the EU or a third country. And also, a third-country provider where the high-risk AI system’s output is used in the EU.
• Users are natural or legal persons who deploy an AI system in a professional capacity, not affected end-users. Users (deployers) of high-risk AI systems have some obligations, though less than providers (developers). This applies to users located in the EU, and third-country users where the AI system’s output is used in the EU.
• General purpose AI or GPAI model providers must provide technical documentation, and instructions for use, comply with the Copyright Directive, and publish a summary of the content used for training. Free and open license GPAI model providers only need to comply with copyright and publish the training data summary, unless they present a systemic risk. All providers of GPAI models that present a systemic risk – open or closed – must also conduct model evaluations, and adversarial testing, and track and report serious incidents and ensure cybersecurity protections.
• The Codes of Practice will account for international approaches. It will cover but not necessarily be limited to the obligations, particularly the relevant information to include in technical documentation for authorities and downstream providers, identification of the type and nature of systemic risks and their sources, and the modalities of risk management accounting for specific challenges in addressing risks due to the way they may emerge and materialize throughout the value chain. The AI Office may invite GPAI model providers, and relevant national competent authorities to participate in drawing up the codes, while civil society, industry, academia, downstream providers and independent experts may support the process.

Application & Timeline of Act

The EU AI Act will be fully applicable 24 months after entry into force, but some parts will be applicable sooner, for instance the ban on AI systems posing unacceptable risks will apply six months after the entry into force. The Codes of Practice will apply nine months after entry into force. Rules on general-purpose AI systems that need to comply with transparency requirements will apply 12 months after the entry into force. High-risk systems will have more time to comply with the requirements as the obligations concerning them will become applicable 36 months after the entry into force. The expected timeline for the same is:

• August 1st, 2024: The AI Act will enter into force.
• February 2025: Prohibition of certain AI systems - Chapters I (general provisions) & II (prohibited AI systems) will apply; Prohibition of certain AI systems.
• August 2025: Chapter III Section 4 (notifying authorities), Chapter V (general purpose AI models), Chapter VII (governance), Chapter XII (confidentiality and penalties), and Article 78 (confidentiality) will apply, except for Article 101 (fines for General Purpose AI providers); Requirements for new GPAI models. 
• August 2026: The whole AI Act applies, except for Article 6(1) & corresponding obligations (one of the categories of high-risk AI systems);
•  August 2027: Article 6(1) & corresponding obligations apply.

The AI Act sets out clear definitions for the different actors involved in AI, such as the providers, deployers, importers, distributors, and product manufacturers. This means all parties involved in the development, usage, import, distribution, or manufacturing of AI systems will be held accountable. Along with this, the AI Act also applies to providers and deployers of AI systems located outside of the EU, e.g., in Switzerland, if output produced by the system is intended to be used in the EU. The Act applies to any AI system within the EU that is on the market, in service, or in use, covering both AI providers (the companies selling AI systems) and AI deployers (the organizations using those systems).

In short, the AI Act will apply to different companies across the AI distribution chain, including providers, deployers, importers, and distributors (collectively referred to as “Operators”). The EU AI Act also has extraterritorial application and can also apply to companies not established in the EU, or providers outside the EU if they -make an AI system or GPAI model available on the EU market. Even if only the output generated by the AI system is used in the EU, the Act still applies to such providers and deployers. 

CyberPeace Outlook 

The EU AI Act, approved by EU lawmakers in 2024, is a landmark legislation designed to protect citizens' health, safety, and fundamental rights from potential harm caused by AI systems. The AI Act will apply to AI systems and GPAI models. The Act creates a tiered risk categorization system with various regulations and stiff penalties for noncompliance. The Act adopts a risk-based approach to AI governance, categorizing potential risks into four tiers: unacceptable, high, limited, and low. Violations of banned systems carry the highest fine: €35 million, or 7 percent of global annual revenue. It establishes transparency requirements for general-purpose AI systems. The regulation also provides specific rules for general-purpose AI (GPAI) models and lays down more stringent requirements for GPAI models with 'high-impact capabilities' that could pose a systemic risk and have a significant impact on the internal market. For high-risk AI systems, the AI Act addresses the issues of fundamental rights impact assessment and data protection impact assessment.

The EU AI Act aims to enhance trust in AI technologies by establishing clear regulatory standards governing AI. We encourage regulatory frameworks that strive to balance the desire to foster innovation with the critical need to prevent unethical practices that may cause user harm. The legislation can be seen as strengthening the EU's position as a global leader in AI innovation and developing regulatory frameworks for emerging technologies. It sets a global benchmark for regulating AI. The companies to which the act applies will need to make sure their practices align with the same. The act may inspire other nations to develop their own legislation contributing to global AI governance. The world of AI is complex and challenging, the implementation of regulatory checks, and compliance by the concerned companies, all pose a conundrum. However, in the end, balancing innovation with ethical considerations is paramount. 

At the same hand, the tech sector welcomes regulatory progress but warns that overly-rigid regulations could stifle innovation. Hence flexibility and adaptability are key to effective AI governance. The journey towards robust AI regulation has begun in major countries, and it is important that we find the right balance between safety and innovation and also take into consideration the industry reactions.

References: 

1. https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202401689
2. https://www.theverge.com/2024/7/12/24197058/eu-ai-act-regulations-bans-deadline
3. https://techcrunch.com/2024/07/12/eus-ai-act-gets-published-in-blocs-official-journal-starting-clock-on-legal-deadlines/
4. https://www.wsgr.com/en/insights/eu-ai-act-to-enter-into-force-in-august.html
5. https://www.techtarget.com/searchenterpriseai/tip/Is-your-business-ready-for-the-EU-AI-Act
6. https://www.simmons-simmons.com/en/publications/clyimpowh000ouxgkw1oidakk/the-eu-ai-act-a-quick-guide

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Introduction

India is operating on digital rails today. Even as UPI is set to hit over 130 billion transactions by 2025, it already makes up around 80% of retail payments flow by volume. That volume is really what it is all about: a single extra transaction is simply another attack surface, and fraud has correspondingly scaled up. FY 2024-25 alone saw an estimated 485 crore in losses to UPI-related fraud through 632,000 reported frauds.  The response from the RBI has not been a single rulebook but a layered and dynamic regulatory infrastructure that currently spans banks, NBFCs, payment aggregators, card networks, and, by extension, the fintechs that connect into all of these components. Knowing why the infrastructure is shaped the way it is and what actual enforcement looks like is far more crucial than having a checklist in mind. This write-up moves beyond summarising the rules to outlining the thinking behind them, the latest trends shaping the segment and the reality of an implementation roadmap.

Why Has RBI Cybersecurity Compliance Become Non-Negotiable?

Three forces are converging on regulated entities at once:

1. The threat surface has outgrown legacy controls: Core banking systems were never designed for an ecosystem of APIs, third-party payment gateways, and unregulated fintech partners sitting on top of them. Every integration is a potential entry point, and attackers know it.

2. Financial stability is now a cyber question, not just a credit question: a prolonged outage at a large payment system operator doesn't just hurt one bank's balance sheet; it can freeze retail payments for hundreds of millions of people. RBI treats this as systemic risk, which is why its post-2020 directions lean so heavily on resilience (the ability to keep operating through an attack) rather than just prevention.

3. Enforcement has escalated: The RBI's May 2025 single order penalised five different banks, including levying a 97.80 lakh penalty on ICICI Bank with one part attributable to its late reporting of a cybersecurity incident and another to a lapse in account alert systems; this demonstrates this rise in intensity. Remember, under Sections 46 and 47A of the Banking Regulation Act 1949, the RBI has the power to levy penalties irrespective of the occurrence of an actual breach if an individual fails to comply with procedures like not properly assessing vendor access or reporting incidents late or failing to update crisis plans or timely reports. Now this is a significant development, an issue even in the absence of a full-scale 'hack'.

The Regulatory Architecture: What Actually Applies to Whom

Rather than one framework, regulated entities are governed by several overlapping directions depending on their category:

• Banks: The original RBI Cyber Security Framework requires board-approved cybersecurity policies, 24x7 Security Operations Centres, and defined incident reporting timelines.
• NBFCs: NBFCs were initially governed under the Master Direction on IT Framework for NBFC Sector, which escalates accordingly as per size of asset – the framework underwent substantial change in shape with the RBI notifying Cybersecurity, Technology Risk, Resilience and Assurance Framework directions, 2026 for NBFCs, which lays specific obligations based on tier level (NBFC-Base Layer, Middle Layer, Upper Layer & Top Layer entities) on issues like MIS reporting, fraud analytics & impact of incident reporting. 
• PSOs: Non-bank Payment system Operators PSOs have been regulated under the Master Direction on Cyber Resilience and Digital Payment Security Controls, 2024 (July 2024). Card networks, payment aggregators, PPI issuers and other PSOs come under its umbrella, with staged compliance based on the volume/business size (large – NPCI, card networks and the largest PPI issuers will meet requirements on April 1, 2025; medium ones by April 1, 2026; and small ones by April 1, 2028).
• Other Bodies: IT Governance (on all regulated entities broadly) The Master Direction on Information Technology Governance, Risk, Controls and Assurance Practices, 2023, became effective on April 1, 2024, and has set basic benchmarks for information technology (IT) strategy committees, IT risk management processes & IT assurance functions.

Overall trends' information across all these is clear:  escalating tier requirements as per size and board-led controls are mandatory; a conscious acceptance that there will inevitably be data breaches in the future; and increasing emphasis on response and recovery.

Governance: Where RBI Compliance Actually Starts

A recurring theme across every RBI direction is that cybersecurity cannot be delegated entirely to the IT department. The Board of Directors is expected to own information security risk, with oversight typically delegated to a board subcommittee that meets at least quarterly. A board-approved information security policy, reviewed annually, must define the following:

• Roles and responsibilities across the Board, senior management, and the CISO
• Processes to identify, assess, monitor, and manage cyber risk
• Employee and stakeholder training and awareness programs

RBI's own 2022 thematic review of IT governance across 20 banks found unmanaged third-party vendor access, with vendors retaining privileged access to core systems long after a project ended at more than half the institutions reviewed. That kind of gap is a governance failure as much as a technical one: it happens because nobody owns the review cycle, not because the firewall is misconfigured.

Key Technical and Operational Controls

Once governance is in place, RBI's expectations translate into concrete control domains:

Infrastructure and access hardening: Network segmentation, endpoint protection, server hardening baselines, and multi-factor authentication for privileged access. Access reviews should be continuous or, at minimum, periodic, enforcing least privilege and separation of duties, not a one-time onboarding checkbox.

Vulnerability and patch management: Regular vulnerability scanning, risk-prioritised remediation, and a documented process for feeding vulnerability data into risk decisions, not just a scanner report sitting in an inbox.

Data security and localisation: Encryption at rest, in transit, and during processing; sound key management; data classification and masking; and adherence to the RBI's data localisation requirements for payment data.

Vendor and third-party risk: This has become one of the sharpest areas of regulatory focus. The 2024 PSO Master Directions explicitly require oversight of "unregulated entities" in the payment chain like payment gateways, third-party service providers, and vendors with due diligence, contractual security clauses, and ongoing monitoring baked in. For a bank or fintech, this means your compliance posture is only as strong as your weakest vendor's; the RBI increasingly holds the regulated entity accountable for its partners' failures, not just its own.

Security operations and incident response: 24x7 SOC capability, threat intelligence integration, and tested incident response plans via tabletop exercises and simulated attacks. A Cyber Crisis Management Plan (CCMP) drafted once and never rehearsed is, in practice, treated by RBI examiners as functionally absent.

Incident Reporting

This is where two separate regulatory clocks run in parallel, and conflating them is a common compliance mistake:

• RBI requirements: Regulated entities will normally have around 2-6 hours of detection to report most security incidents to the RBI with follow-up notifications as and when the nature of the incident unfolds.
• CERT-In's 6-hour rule: The CERT-In Directions dated April 2022 stipulate that every body corporate, which includes any bank, NBFC or payment aggregator, is obligated to report specified categories of cyber incidents to CERT-In within 6 hours of noticing them and not after fully confirming details at an additional 6 hours after noticing them. CERT-In directions also mandated that ICT system clocks are to be synced to NIC/NPL time servers, and system logs are to be maintained for a rolling 180 days within India.
• The Digital Personal Data Protection Act overlay: In the case of a data breach involving personal data, there will additionally be a 72-hour notification obligation from the data fiduciary to the Data Protection Board under the Digital Personal Data Protection Act, 2023, which runs in parallel to, and not in substitution of, the CERT-In time.

The practical consequences: If an SOP for incident response only maps one regime, then it would fail in an actual incident. We need a single intake process whereby multiple notification tracks are automatically triggered at the precise time an incident is detected, given that the inability to report "because we were still figuring it out" does not constitute an acceptable justification for a late notification under either regime.

Why Penetration Testing Sits at the Center of Compliance

RBI's VAPT (Vulnerability Assessment and Penetration Testing) mandate isn't a box-ticking annual scan. It's meant to validate, under real attack conditions, whether the governance and technical controls described above actually hold up. Automated scanning finds known vulnerabilities; penetration testing, ideally combining automated coverage with manual, business-context-aware testing, finds the logic flaws, chained exploits, and privilege escalation paths that scanners miss and that attackers actually use.

For most regulated entities, a realistic testing cadence looks like:

1. Semi-annual vulnerability assessments across critical systems
2. Annual (at minimum) penetration testing of applications, networks, and infrastructure supporting payment and customer-data systems
3. Testing triggered by events before go-live, after major changes, and post-deployment.
4. Documented remediation cycles and rescans, with reports mapped directly to the relevant compliance clauses for audit purposes

The Cost of Getting It Wrong

RBI's enforcement history grounds the financial impact of enforcement actions. In addition to the May 2025 fines levied on ICICI, Axis, IDBI, Bank of Baroda and Bank of Maharashtra, the RBI's published Enforcement Guidelines differentiate three levels of severity; procedural breaches such as delayed policy review or late incident notifications usually warrant 10 lakh to 1 crore fines plus formal reprimands and remediation orders with deadlines. Recurring governance breaches go farther than fines, resulting in restrictions on business activities and more stringent supervisory reporting, with egregious breaches leading to inclusion under the RBI's Prompt Corrective Action regime. Penalty orders are also publicly available, and the resulting toll on customer trust, partner trust, and investor confidence often dwarfs the fines.

A Practical Implementation Roadmap

For an organisation building or maturing its RBI compliance programme, a sensible sequence looks like this:

1. Establish board-level ownership first: Form or formalise the Board IT/Risk sub-committee, appoint or empower a CISO with real authority, and get the information security policy formally approved, and this is the foundation every RBI examiner checks first.
2. Mapping: A mid-sized NBFC, a large payment aggregator, and a scheduled commercial bank face different, overlapping obligations. Get this scoping wrong and you'll either over-engineer or leave gaps.
3. Secure third-party access: Audit every vendor with system access, revoke stale privileges, and build vendor security clauses into contracts going forward, not retroactively.
4. Build one incident response SOP: Run one compiled playbook that satisfies RBI, Cert-In and DPDP.
5. Schedule and actually rehearse tabletop exercises: not just write a CCMP and file it away.
6. Institutionalise VAPT as a continuous, risk-triggered programme rather than an annual compliance event, and ensure reports are structured to map directly onto RBI's compliance clauses for audit readiness.
7. Track the regulatory calendar actively: 2024–2026 has brought new NBFC directions, PSO phase-ins, and ITG-RC&AP obligations in quick succession, and the pace shows no sign of slowing.

Conclusion

RBI's shift from perimeter-focused prevention to a risk-based, resilience-first model reflects a broader reality: in a digital payments ecosystem processing billions of transactions a month, breaches are not a hypothetical to plan around; they're an operational certainty to plan for. The frameworks discussed here, cyber resilience directions, IT governance mandates, CERT-In's reporting clock and the new NBFC cybersecurity directions aren't separate hurdles to clear individually. They're converging into a single expectation: that regulated entities can detect an incident quickly, contain it, recover fast, and prove with documentation, tested plans, and independent penetration test evidence that they were ready for it in the first place.

For banks, NBFCs, and fintechs operating in India today, that readiness is no longer just a regulatory requirement. It's the baseline cost of operating in the financial system at all.

References

• https://www.getastra.com/blog/compliance/rbi-cybersecurity-compliance-checklist/

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Sources

1. Astra Security — RBI Cybersecurity Compliance Checklist for Banks & NBFCs in 2026: https://www.getastra.com/blog/compliance/rbi-cybersecurity-compliance-checklist/ 
2. TaxGuru — RBI Issues NBFC Cybersecurity and Technology Risk Directions, 2026: https://taxguru.in/rbi/rbi-issues-nbfc-cybersecurity-technology-risk-directions-2026-governance-framework.html 
3. Mondaq — Cyber Resilience and Digital Payment Security Governance (Master Directions, 2024): https://www.mondaq.com/india/fin-tech/1527836/cyber-resilience-and-digital-payment-security-governance-a-step-towards-secured-payments-systems 
4. TaxGuru — Master Directions on Cyber Resilience & Digital Payment Security Controls for Non-bank PSOs: https://taxguru.in/rbi/master-directions-cyber-resilience-digital-payment-security-controls-non-bank-payment-system-operators.html 
5. CyberNX — Ultimate Guide on RBI Master Directions for Cyber Resilience: https://www.cybernx.com/rbi-master-directions-guide/ 
6. SIRI Law LLP — A Comprehensive Guide to India's CERT-In 6-Hour Cyber Incident Reporting Mandate: https://sirilawllp.com/a-comprehensive-guide-to-indias-cert-in-6-hour-cyber-incident-reporting-mandate/ 
7. CreativeCyber — CERT-In 6-Hour Incident Reporting SOP for Indian Banks & NBFCs: https://creativecyber.in/resources/cert-in-6-hour-incident-reporting/ 
8. BW Businessworld — RBI Slaps Penalties on ICICI, Axis and Three Others Over Compliance Failures (May 2025): https://www.businessworld.in/article/rbi-slaps-penalties-on-icici-axis-three-others-over-compliance-failures-555643 
9. FluxForce — RBI Cyber Framework: Banks' Requirements & Penalties: https://www.fluxforce.ai/regulations/rbi-cyber-security-framework-banks 
10. MYITMANAGER — RBI Cybersecurity Guidelines 2026: What Banks and NBFCs Must Do: https://myitmanager.in/rbi-cybersecurity-guidelines-2026-banks-nbfcs/

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Introduction

Twitter Inc.’s appeal against barring orders for specific accounts issued by the Ministry of Electronics and Information Technology was denied by a single judge on the Karnataka High Court. Twitter Inc. was also given an Rs. 50 lakh fine by Justice Krishna Dixit, who claimed the social media corporation had approached the court defying government directives.

As a foreign corporation, Twitter’s locus standi had been called into doubt by the government, which said they were ineligible to apply Articles 19 and 21 to their situation. Additionally, the government claimed that because Twitter was only designed to serve as an intermediary, there was no “jural relationship” between Twitter and its users.

The Issue

In accordance with Section 69A of the Information Technology Act, the Ministry issued the directives. Nevertheless, Twitter had argued in its appeal that the orders “fall foul of Section 69A both substantially and procedurally.” Twitter argued that in accordance with 69A, account holders were to be notified before having their tweets and accounts deleted. However, the Ministry failed to provide these account holders with any notices.

On June 4, 2022, and again on June 6, 2022, the government sent letters to Twitter’s compliance officer requesting that they come before them and provide an explanation for why the Blocking Orders were not followed and why no action should be taken against them.

Twitter replied on June 9 that the content against which it had not followed the blocking orders does not seem to be a violation of Section 69A. On June 27, 2022, the Government issued another notice stating Twitter was violating its directions. On June 29, Twitter replied, asking the Government to reconsider the direction on the basis of the doctrine of proportionality. On June 30, 2022, the Government withdrew blocking orders on ten account-level URLs but gave an additional list of 27 URLs to be blocked. On July 10, more accounts were blocked. Compiling the orders “under protest,” Twitter approached the HC with the petition challenging the orders.

Legality

Additionally, the government claimed that because Twitter was only designed to serve as an intermediary, there was no “jural relationship” between Twitter and its users.

Government attorney Additional Solicitor General R Sankaranarayanan argued that tweets mentioning “Indian Occupied Kashmir” and the survival of LTTE commander Velupillai Prabhakaran were serious enough to undermine the integrity of the nation.

Twitter, on the other hand, claimed that its users have pushed for these rights. Additionally, Twitter maintained that under Article 14 of the Constitution, even as a foreign company, they were entitled to certain rights, such as the right to equality. They also argued that the reason for the account blocking in each case was not stated and that Section 69a’s provision for blocking a URL should only apply to the offending URL rather than the entire account because blocking the entire account would prevent the creation of information while blocking the offending tweet only applied to already-created information.

Conclusion

The evolution of cyberspace has been substantiated by big tech companies like Facebook, Google, Twitter, Amazon and many more. These companies have been instrumental in leading the spectrum of emerging technologies and creating a blanket of ease and accessibility for users. Compliance with laws and policies is of utmost priority for the government, and the new bills and policies are empowering the Indian cyberspace. Non Compliance will be taken very seriously, and the same is legalised under the Intermediary Guidelines 2021 and 2022 by Meity. Referring to Section 79 of the Information Technology Act, which pertains to an exemption from liability of intermediary in some instances, it was said, “Intermediary is bound to obey the orders which the designate authority/agency which the government fixes from time to time.”