The Reserve Bank of India (RBI) on January 15 released a draft framework for a self-regulatory body for financial technology (fintech) companies.
Fintech companies should establish a self-regulatory organization (SRO) that will ensure legal and regulatory compliance, the RBI said in the draft framework.
An SRO aims to establish codes of conduct for its fintech members to promote transparency, fair competition and consumer protection.
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According to the draft framework, the self-regulatory body would work to strengthen governance standards and respond to the needs and challenges of the sector.
“Achieving a healthy balance between, on the one hand, facilitating industry innovation and meeting regulatory priorities in a way that protects consumers and limits risk, on the other, is crucial to optimizing contribution of the FinTech sector,” the central bank said. , adding that self-regulation within the fintech sector is a preferred approach to achieve the desired balance.
In September, RBI Governor Shaktikanta Das had urged fintech companies to form such a self-regulatory body.
The draft framework comes at a time when the fintech sector is experiencing rapid growth due to high demand for digital payments.
The self-regulatory body would ensure compliance with industry standards and facilitate a transparent communication channel with the RBI, according to the draft norms.
The organization will also need to consult the RBI to develop and update the taxonomy of the fintech sector, to carry out all the tasks assigned to it and to provide the information as per the directives of the central bank.
The fintech self-regulatory organization’s books may be inspected by the RBI or it may arrange for them to be audited.
According to the draft, the board of directors of the self-regulatory organization should establish a framework for the continuous monitoring of the “fit and proper” status of its directors.
On the draft framework, comments have been invited by the central bank by the end of February. After that, a final framework will be released.