RBI publishes framework for recognizing Self-Regulatory Entities in Fintech space

The Reserve Bank of India (RBI) had published the omnibus framework for recognition of Self -Regulatory Organisations (SROs) for Regulated Entities (REs) of the RBI (Omnibus Framework) in March 2024. The Omnibus Framework was issued pursuant to the announcement made by the RBI in its Statement on Developmental and Regulatory Policies dated October 06, 2023. The Omnibus Framework prescribes the broad objectives, functions, eligibility criteria and governance standards, which will be common for all SROs, irrespective of the sector. The framework also lays down the broad membership criteria and other terms and conditions to be followed by the SROs for grant of recognition by the RBI.

 

In this backdrop, the RBI has now finalised and published the framework for recognising SROs in the FinTech Sector (SRO-FT) (Framework). As per the RBI, self-regulation necessitates a well-defined structure based on consensus and co-operation amongst the entities. SRO-FT essentially is an industry-led entity responsible for establishing and enforcing regulatory standards, promoting ethical conduct, ensuring market integrity, resolving disputes, and fostering transparency and accountability among its members. The Framework contains the characteristics of an SRO-FT, and includes, inter-alia, broad functions, governance standards, eligibility criteria and expectations for grant of recognition as an SRO-FT.

 

The key aspects covered under the Framework include, inter alia, the following:

 

Characteristics and Operations

 

The SRO-FT should operate objectively, with credibility and responsibility under the oversight of the RBI. It should strive towards healthy and sustainable development of the FinTech sector, and if necessary, identify a glide path to a phased regulatory and/or supervisory compliance. The SRO-FT should have, inter alia, the following characteristics:

 

• True Representation of the FinTech Sector: The SRO-FT should derive its strength from its membership, ensuring that it is truly representative of the FinTech sector, including FinTechs that are currently regulated by the RBI (for instance, NBFC-Account Aggregators, NBFC-Peer to Peer Lending Platforms, etc.) but excluding banks. The diverse nature of FinTech businesses means they can often operate across various domains.

 

• Development-oriented: The SRO-FT should be development-oriented, actively contributing to the growth and evolution of the industry. This involves prescribing minimum eligibility criteria for its members, providing specialised knowledge and expertise, offering guidance, and contributing to capacity building through training programs.

 

• Independence from Influence: To maintain credibility, the SRO-FT should operate independently, free from the influence of any single member or group of members. Further, the SRO-FT should maintain impartiality, avoid conflicts of interest, and ensure unbiased oversight over its members.

 

• Legitimate Arbiter of Disputes: Members should perceive the SRO-FT as a legitimate arbiter of disputes. This would require a transparent and fair resolution mechanism for disputes arising among members that instil confidence in the FinTech sector.

 

• Repository of Information: As a repository of information, the SRO-FT should collect, analyse, and disseminate relevant data pertaining to the activities of its members.

 

Eligibility Criteria

 

The general requirements prescribed for eligibility as SRO-FT include, inter alia, the following:

 

• The applicant should be set up as a not-for-profit company registered under Section 8 of the Companies Act, 2013. The shareholding of the SRO should be sufficiently diversified, and no entity should hold 10% or more of its paid-up share capital, either singly or acting in concert.

 

• The SRO-FT should demonstrate the capability of establishing the necessary infrastructure to fulfil the responsibility of SRO-FT effectively, and consistently.

 

Membership Criteria

 

The key aspects prescribed for membership as SRO-FT include, inter alia, the following:

 

• The applicant SRO-FT should represent the FinTech sector with membership across entities of all size, stage and activities. If representation is inadequate at the time of application, a roadmap should be included for achieving this within a reasonable timeline. Failure to demonstrate or attain comprehensive membership would result in refusal or revocation of recognition.

 

• Membership of the SRO-FT should comprise of members who are FinTechs, and membership should be voluntary.

 

• The SRO-FT should be an entity domiciled/registered in India. However, the SRO-FT could have FinTech members domiciled outside India as members.

 

• The membership fee structure developed by the SRO-FT should be reasonable, and non-discriminatory. While membership fees may vary or be differentiated, based on size, intent, capability, etc., it should be ensured that the membership character remains nondiscriminatory, i.e., all FinTechs irrespective of membership fees enjoy equal rights and representation.

 

Application Requirements

 

The application requirements prescribed for eligibility as SRO-FT include, inter alia, the following:

 

• Any representative organisation for FinTechs may apply for recognition as an SRO-FT. The ‘representative’ character should be demonstrable at the stage of application by way of actual membership. Separately, ‘intended’ membership may also be indicated by the applicant, listing out FinTechs who have explicitly conveyed their intention to become a member in the future.

 

• Membership in the SRO-FT should be primarily from FinTechs that are currently not regulated by any financial sector regulator. Membership may also be open to Regulated Entities (other than banks).

 

• The number of SRO-FTs to be recognised would be considered based on the number and nature of applications received.

 

Functions of SRO-FT

 

In general, the functions of SRO-FT include, inter alia, aspects such as guiding the conduct of its members, ensuring that they adhere to industry standards, complying with relevant laws and regulations, and maintaining high ethical standards.

 

Responsibilities of SRO-FT Towards the RBI

 

In general, the responsibilities of SRO-FT towards the RBI include, inter alia, aspects such as playing a pivotal role in ensuring compliance with statutory and regulatory frameworks, adherence to industry standards and best practices, etc. The SRO-FT should act as the collective voice of its members in engagements with the RBI. In such engagements, it would be expected that the SRO-FT functions beyond the self-interest of specific members and addresses larger concerns of the FinTech sector.

 

For more details, kindly refer to the Framework notified by the RBI, available by clicking on this link.