The Reserve Bank of India (RBI) on Thursday released the final framework for recognition of self-regulatory organisations in the financial technology sector (SRO-FT), encouraging entities to have a representative membership from the fintech sector.
An SRO-FT may consist of members from fintechs currently regulated by the RBI, including non-banking financial companies-account aggregators (NBFC-AAs), NBFC-peer-to-peer (P2P) lending platforms, among others, excluding banks.
The banking regulator said there could be more than one SRO-FT, and fintech firms would be encouraged to participate in at least one.
“Given the dynamics of the sector, fintechs are likely to be members of multiple SROs. Further, fintech entities are encouraged to participate in at least one SRO,” the RBI said.
The final framework comes nearly five months after the banking regulator published draft standards for such entities.
“The RBI’s much-awaited SRO-FT guidelines are commendable in many ways. They recognise the multiple fintech sectors and activities, such as digital lenders, account aggregators and P2P activities, which form a significant part of India’s fintech services; they give pride of place to unregulated entities that are often considered the backbone of the sector,” said Jatinder Handoo, Director General, Digital Lenders Association of India (DLAI).
The RBI will soon initiate the process of recognition of SROs in the fintech sector, and entities meeting the eligibility conditions and requirements of the SRO-FT framework will be able to submit an application to the regulator.
An OAR is a non-governmental organization that acts as a bridge between industry players and the regulator. It also sets standards of conduct for entities operating in the country.
Applicants will be required to have a minimum net worth of Rs 2 crore within one year of being recognised as a non-profit collective investment scheme. The entity must be a non-profit company.
The shareholding of an OAR-FT must be diversified and no entity must hold 10% or more of its paid-up share capital.
Organisations like Payments Council of India (PCI), Fintech Association for Consumer Empowerment, DLAI are among the key bodies in the race to seek an SRO-FT.
“PCI will apply for the SRO in the form of a new not-for-profit entity as envisaged by the RBI as we strongly believe that by moving towards a culture of self-governance, all our members will proactively establish and adhere to industry standards and best practices,” said Vishwas Patel, Chairman, PCI and Joint Managing Director, Infibeam Avenues.
With regard to the resolution of grievances, OAR-FTs will be required to establish a dispute resolution framework for their members.
These entities will be the representative voice of its members during discussions with the banking regulator.
“In such engagements, the SRO-FT would be expected to operate beyond the self-interest of specific members and address the broader concerns of the fintech sector,” the RBI said.
SRO-FTs will be required to inform the RBI of developments in fintech and inform it of violations by its members on matters related to regulation or systemic issues within the space.
They will be required to collect up-to-date sectoral information and share it with the RBI to help in policy making.
At the same time, the RBI has called for mechanisms to be put in place to ensure monitoring and enforcement of these rules within these entities. The latter will have to ensure confidentiality of monitoring data and limit data collection to essential information disclosed to fintechs for specific purposes.
“The SRO-FT should deploy appropriate monitoring mechanisms for effective monitoring of the FinTech sector to detect and highlight exceptions. This should involve use of tools and techniques to assess the activities of industry participants, ensuring a proactive approach to maintain integrity and compliance,” the RBI said.
First published: May 30, 2024 | 5:43 p.m. IST