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Mumbai, The <keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword> on Monday released a 'draft framework for recognising <keyword id="20198317" type="General" weightage="20" keywordseo="self-regulatory-organisations" source="keywords">Self-Regulatory Organisations</keyword> (SRO) for <keyword id="19942953" type="General" weightage="20" keywordseo="fintech-sector" source="keywords">FinTech Sector</keyword>', laying down the characteristics of a <keyword id="19945816" type="General" weightage="20" keywordseo="fintech" source="keywords">FinTech</keyword> SRO, and includes the required functions and governance standards. FinTechs are significantly reshaping the landscape of financial services by streamlining processes, improving accessibility, and reducing costs. Achieving a healthy balance between facilitating innovation by the industry on the one hand, and meeting regulatory priorities in a manner that protects consumers and contains risk, on the other, is crucial to optimising the contribution of the FinTech sector, the RBI said. "Self-regulation within the FinTech sector is a preferred approach for achieving the desired balance," the central bank stated. According to the RBI draft framework, the SRO-FT would derive its strength from its membership, ensuring that it is truly representative of the FinTech sector. Through comprehensive membership agreements that encompass a broad spectrum of industry players, the SRO-FT should gain the legitimacy and credibility to not only frame baseline standards and rules of conduct codes, but also to effectively monitor and enforce them. The SRO-FT must be looked up to and accepted by the industry as the key body for setting market standards, defining rules of conduct and ensuring voluntary adoption of the common framework by its members, the RBI said. The framework also states that the SRO-FT should be development-oriented, actively contributing to the growth and evolution of the industry. This involves providing specialised knowledge and expertise, offering guidance, and contributing to capacity building through training programs, and prescribing minimum eligibility criteria for its members. Also, 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 instils confidence in the FinTech industry. By efficiently handling conflicts and grievances, the SRO-FT would contribute to a more stable and harmonious FinTech environment. A proactive <keyword id="20198316" type="General" weightage="20" keywordseo="sroft" source="keywords">SROFT</keyword> should be capable of motivating its members to align with regulatory priorities. This would involve facilitating communication between industry players and regulatory bodies, advocating for necessary changes, and promoting a culture of compliance. The SROFT, as its duty towards ensuring compliance, should be empowered to investigate and take disciplinary action against its members for non-adherence to codes/standards/rules. The RBI said comments from stakeholders and members of the public on the draft framework may be sent by end February 2024, through e-mail. The final framework will be issued taking into account stakeholder and public responses.

RBI releases draft framework for Fintech sector self-regulatory organisations

<ul><li>According to <keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword>, the <keyword id="19945816" type="General" weightage="20" keywordseo="fintech" source="keywords">Fintech</keyword> <keyword id="881153" type="General" weightage="20" keywordseo="self-regulatory-organisation" source="Orion">self regulatory organisation</keyword> (SRO-FT) would derive its strength from its membership, ensuring that it is truly representative of the <keyword id="6133582" type="General" weightage="20" keywordseo="fintech-sector" source="Orion">fintech sector</keyword>. </li><li>The <keyword id="19901291" type="General" weightage="20" keywordseo="sro" source="keywords">SRO</keyword> model enables a balance between regulation and innovation, which is especially critical in fast-evolving sectors such as fintech. </li><li>The SRO-FT is anticipated to function impartially, with credibility and responsibility under the supervision of the regulator. </li></ul>The Reserve Bank(RBI) of India has released a preliminary framework outlining general functions, governance standards, and eligibility requirements for the establishment of a self-regulatory organisation for FinTech firms (SRO-FT). The recognition of SRO-FTs would be determined by the quantity and characteristics of the applications received. According to the RBI, “The SRO-FT would derive its strength from its membership, ensuring that it is truly representative of the fintech sector. Through comprehensive membership agreements that encompass a broad spectrum of industry players, the SRO-FT should gain the legitimacy and credibility to not only frame baseline standards and rules of conduct codes, but also to effectively monitor and enforce them.” Keeping up with technological progress “The RBI's move to establish an SRO framework is a game-changer in financial regulations, especially for digital lending and AI-driven innovation. This is a strong shift towards a collaborative, adaptive ecosystem. By integrating industry insights into regulation, we're ensuring that rules are practical and keep up with technological progress, fostering innovation and growth,” says <keyword id="20212226" type="General" weightage="20" keywordseo="adhil-shetty" source="keywords">Adhil Shetty</keyword>, CEO, BankBazaar, a financial marketplace. He adds that the SRO model enables a balance between regulation and innovation, which is especially critical in fast-evolving sectors such as fintech. This is not just about ensuring compliance; it's about creating a culture of integrity and ethical practices that are ingrained in the industry's DNA. The RBI's commitment to this collaborative approach is thus a significant step in developing a resilient financial ecosystem. Healthy and sustainable growth of the fintech sector “The creation of an SRO is seen as crucial in combating the influence of unscrupulous lenders, promoting ethical conduct, strengthening lending infrastructure, and formulating adaptable regulatory strategies,” says <keyword id="20212225" type="General" weightage="20" keywordseo="madhusudan-ekambaram" source="keywords">Madhusudan Ekambaram</keyword>, Co-founder and CEO, KreditBee, a personal loan app. The SRO-FT is anticipated to function impartially, with credibility and responsibility under the supervision of the regulator. Its primary goal is to contribute to the healthy and sustainable growth of the fintech sector, while also charting a smooth path to phased regulatory compliance when necessary. “This collaborative and participatory approach aligns with the RBI's overarching objective of fostering a resilient and sustainable financial ecosystem, emphasising ethical behaviour and transparency,” says Ekambaram. The SRO-FT is thus expected to play a pivotal role in shaping the course of digital lending in India by ensuring the adoption of responsible practices and maintaining integrity within the industry.

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RBI releases draft framework for Fintech sector self-regulatory organisations

IANS

Fintech SRO aims to enhance credibility of sector, promote ethical conduct

Anagh Pal

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