 "Possible to have different SROs for fintech sectors: Industry players")
There is a possibility that different self-regulatory organizations (SROs) may be established for various fintech sectors in the payments and digital lending space, according to industry players involved in discussions with the regulator. This is because a single SRO may not be able to cater to the diverse needs of the industry.
“The RBI governor (Shaktikanta Das) spoke about an omnibus framework for SRO, which implies a common framework for SROs. He also mentioned that the RBI may prescribe sector-specific additional conditions at the time of calling for applications for recognising such SROs. This gives us the impression that there may be separate SROs for digital lending and payments. This is because a single SRO may not be capable of taking on all the required functions,” said Jatinder Handoo, CEO, Digital Lenders Association of India (DLAI), an industry association for digital lenders.
Handoo further said an SRO for fintechs may come up in four-five months.
“We are expecting the RBI to come up with a circular soliciting interests for industry associations and with criteria for application in a month or one and a half months. This will be followed by 15-20 days for entities to apply for the same. After the application, it may take another eight-12 weeks for evaluation,” he said.
The RBI governor urged fintech companies to establish an SRO in a speech at Global Fintech Fest (GFF) 2023 in Mumbai last month. An SRO is a non-governmental organisation that acts as a bridge between industry players and the regulator, and sets standards for the conduct of entities operating in the country.
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These organisations assist in managing the capacities of a sector to meet regulatory requirements while helping develop standards, advisories which are in line with existing regulations.
“If there is any discrepancy or deviation in regulatory compliance by members of an SRO as pointed out by the RBI, it can ask the SRO to conduct an investigation on the field and submit a report for the same,” Handoo said.
Additionally, SROs should focus on a customer grievance redress mechanism and prioritising the customer. Moreover, it is necessary to have a line of communication between the industry and the regulator.
“SROs will facilitate dialogues or a discussion about any feedback or suggestions from the industry to the RBI and will take the voice of industry REs (regulated entities) and LSPs (loan service providers) to the regulator,” he observed.
He further said that those involved in the discussion expect an activity-based SRO for REs and LSPs.
Besides facilitating discussions, a core function of these SROs would involve protecting fintech customers by monitoring practices associated with privacy and recovery, among others.
“The foremost function of an SRO would be customer protection which has multiple elements, such as privacy, disclosures, and recovery practices. In the lending space, these things have evolved significantly and the RBI would expect all these things to be monitored by the self-regulatory organisation,” said Sugandh Saxena, CEO at the Fintech Association for Consumer Empowerment (FACE).
Saxena pressed for mandatory membership of SROs. “One does not have any control over players who decide not to be part of an SRO. There should be a mandate for all industry players to be part of an SRO,” she said.
In case of disputes among members of an SRO, there should also be a mechanism for grievance redress. This includes an enforcement committee that looks at disputes and presents its decision.
“At DLAI, in case of any violation of the Code of Conduct and to address any disputes among its members regarding the digital lending activity that may arise, there is an enforcement committee which is headed by an independent member. In case of disputes and non-compliance, the committee reviews the cases of all concerned parties based on which a decision is taken. The decision can be accepted, and in case it is not accepted, the aggrieved party still has a chance to appeal to the SRO committee within DLAI. There is also a provision to communicate such matters to the RBI,” Handoo explained.