The Reserve Bank of India (RBI) has unveiled a draft framework for the establishment and recognition of self-regulatory organizations (SROs) in the fintech sector. The draft rules aim to strike a balance between fostering innovation within the industry and ensuring regulatory priorities are met for consumer protection and risk containment.
Characteristics of Self-Regulatory Organisation for Fintechs (SRO-FT)
1. Representative Membership
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- Membership should be voluntary and comprise FinTechs to ensure broad industry representation.
- The SRO-FT must be acknowledged as the primary body for setting market standards and defining rules of conduct.
2. Development-oriented
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- Actively contribute to industry growth by providing expertise, guidance, and capacity-building programs.
- Prescribe minimum eligibility criteria for members to enhance industry standards.
3. Independence and Impartiality
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- Operate independently to ensure unbiased decision-making.
- Avoid conflicts of interest and maintain impartiality in oversight to prevent influence by any dominant member or group.
4. Dispute Resolution
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- Establish a transparent and fair dispute resolution mechanism to be perceived as a legitimate arbiter.
- Instill confidence in the industry through credible conflict resolution.
5. Proactive Engagement
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- Motivate members to align with regulatory priorities.
- Facilitate communication between industry players and regulatory bodies for necessary changes and compliance culture promotion.
6. Information Repository
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- Collect, analyze, and disseminate relevant data about members’ activities.
General Requirements
- SRO-FT should be set up as a not-for-profit company under Section 8 of the Companies Act, 2013.
- Demonstrate sufficient net worth and capability for effective infrastructure.
- Maintain a robust IT infrastructure and deploy technological solutions promptly.
- Seek prior approval from RBI for setting up entities/offices overseas.
Membership Criteria
- Represent the FinTech sector with membership across entities of all sizes, stages, and activities.
- Include a roadmap for achieving comprehensive membership within a reasonable timeline.
Functions
- Guide member conduct, ensure adherence to standards and laws, and address grievances.
- Frame a code of conduct, industry benchmarks, and baseline technology standards.
- Develop standardized documents for specific requirements within the FinTech sector.
Governance Standards
- Board of Directors (BoD) and Key Managerial Personnel (KMP) should possess professional competence, fairness, and integrity.
- Follow fit and proper criteria.
- Adhere to guidelines for transparency, accountability, integrity, and fairness.
- Allow RBI to nominate or depute observers on the SRO-FT Board if necessary.
Important Takeaways For All Competitive Exams
1. RBI Drafts Norms for Fintech SROs:
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- RBI releases draft framework for Fintech Self-Regulatory Organisations (SROs).
- SRO-FT membership to be voluntary and representative of the FinTech sector.
- Focus on balancing innovation, consumer protection, and risk containment.
2. Characteristics of SRO-FT:
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- Representative membership.
- Development-oriented for industry growth.
- Independence, impartiality, and transparent dispute resolution.
- Proactive engagement with regulatory priorities.
- Information repository for relevant data.
3. General Requirements:
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- SRO-FT as a not-for-profit company under Section 8 of Companies Act, 2013.
- Demonstrate sufficient net worth and robust IT infrastructure.
- Seek RBI approval for overseas entities/offices.
4. Membership Criteria:
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- Representation across FinTech entities of all sizes and stages.
- Inadequate representation may lead to denial or revocation.
5. Functions:
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- Guide member conduct and ensure adherence to standards and laws.
- Frame a code of conduct and industry benchmarks.
- Develop standardized documents for the FinTech sector.
6. Governance Standards:
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- BoD and KMP with professional competence and integrity.
- Adherence to fit and proper criteria.
- Guidelines for transparency, accountability, integrity, and fairness.
- RBI may nominate observers on the SRO-FT Board.
7. Industry Feedback Needed:
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- Broader questions on the number of SROs required and their membership.
- Discussion on whether SRO-FT should include only unregulated members or a mix of regulated and unregulated.
- Consensus crucial for effective self-regulation.
8. Feedback from Industry:
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- Positive response from industry representatives, acknowledging the comprehensive and cooperative approach of the SRO framework.
Important Questions Related to Exams
- What is the primary purpose of the RBI’s draft framework for Fintech Self-Regulatory Organisations (SRO-FT)?
- What characteristics should an SRO-FT possess according to the RBI?
- What are the general requirements proposed for SRO-FTs by the RBI?
- What criteria should an SRO-FT fulfill in terms of membership representation?
- What functions are expected of an SRO-FT as per the draft rules?
- What governance standards are outlined for the Board of Directors (BoD) and Key Managerial Personnel (KMP) of SRO-FTs?
Kindly share your responses in the comment section!!