The main idea behind these guidelines is to enable the nascent sector to operate and innovate responsibly, even in the absence of formal regulations.
“The SRO-FT is expected to play a crucial role in promoting responsible innovation by providing a framework that encourages responsible experimentation,” the RBI said, stressing the need to balance innovation and regulation.
The SRO-FT should be tasked with handling cases of grievances, conflicts of interest or disputes among its members, the RBI added.
ET wrote on April 21 The fintech sector has struggled to come together to form an SRO. Discussions around the need for a self-regulatory mechanism for the sector began in early 2023, but only took official form on October 6, when the RBI announced it at one of its press briefings.
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This is the RBI’s second attempt at setting up an SRO for the sector. In 2020, the financial sector regulator had issued guidelines for a payments SRO. While a few entities have applied for the license, the final approval from the RBI is still awaited.
“Under the guidance and supervision of the RBI, the SRO-FT will be able to strengthen the culture of regulatory compliance among Fintechs “and build capacity among industry players,” said Digital Lenders Association of India CEO Jatinder Hadoo.
The regulator has retained the possibility of creating several OARs in the sector, but wants each OAR to have enough members in all areas, such as payments and lending.
Given that much of the sector is already regulated, such as payment aggregators and digital lending startups, the OAR will need to be responsible for managing large-scale unregulated entities. This could include lending service platforms, third-party applications on the unified payment interface, and others that do not fall directly under the regulatory scope.
Navin Surya, a fintech investor, pointed out that this RBI directive has opened up a huge opportunity and responsibility for the entire fintech ecosystem to play a role in the sustainable growth of the sector.
The RBI has set out some basic criteria that are required to become an SRO for the sector. From being a genuine representative of a broad spectrum of fintech startups to being ‘development-centric’, the RBI wants these organisations to support early-stage startups to innovate in a regulated environment.
While the RBI has not specified the net worth required to become an SRO, it has said the organisation must be “not-for-profit” and able to deploy technology solutions within a reasonable time frame.
At least one-third of the board members, including the chairman, should be independent and without any active association with any fintech entity, the RBI said.
Another senior executive at a fintech startup pointed out that most senior finance professionals were associated with fintechs in advisory roles or as independent directors. The regulator should perhaps define what an “active association” is, the executive added.