 "Fintech, Fintech sector")
The Reserve Bank of India (RBI) released the final framework on Thursday for recognising 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 have membership from fintechs currently regulated by the RBI, including non-banking financial companies-account aggregators (NBFC-AA), NBFC-peer-to-peer (P2P) lending platforms, among others, excluding banks.
The banking regulator has indicated that there may be more than one SRO-FT, and fintech firms would be encouraged to participate in at least one.
“Given the dynamics of the sector, it is likely that fintechs could have membership of more than one SRO. Furthermore, the 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 released draft norms for such entities.
“The much-awaited SRO-FT guidelines by the RBI are laudable on many accounts. It recognises the multiple streams and businesses in fintech, such as digital lenders, account aggregators, and P2P business, that are an important part of Indian fintech services; it gives prominence to the non-regulated entities who are often considered the backbone of the sector,” said Jatinder Handoo, chief executive officer, Digital Lenders Association of India (DLAI).
The RBI will soon initiate the process of recognising SROs in the fintech sector, and entities meeting the eligibility conditions and requirements of the SRO-FT framework may submit an application with the regulator.
An SRO is a non-governmental organisation that acts as a bridge between industry players and the regulator. It also sets standards for the conduct of entities operating in the country.
Applicants will be required to have a minimum net worth of Rs 2 crore within a year of being recognised as an SRO-FT. The entity should be a not-for-profit company.
The shareholding of an SRO-FT should be diversified, and no entity should hold 10 per cent or more of its paid-up share capital.
Organisations such as the Payments Council of India (PCI), Fintech Association for Consumer Empowerment, DLAI, are some of the leading bodies in the race to apply for an SRO-FT.
“PCI shall apply for the SRO under a new non-profit entity as envisaged by RBI, as we strongly believe that by pivoting towards a culture of self-governance, all our members will proactively set and adhere to industry standards and best practices,” said Vishwas Patel, chairman at PCI, and joint managing director at Infibeam Avenues.
On grievance redress, SRO-FTs will be required to establish a dispute resolution framework for its members.
These entities will be a representative voice of its members during engagements with the banking regulator.
“In such engagements, it would be expected that the SRO-FT functions beyond the self-interest of specific members and addresses larger concerns of the fintech sector,” the RBI said.
SRO-FTs will be required to update the RBI on fintech developments and notify it of violations by its members on matters related to regulations or systemic issues within the space.
They will be required to collect updated sectoral information and share the same with the RBI in aiding in policymaking.
Meanwhile, the RBI has called for mechanisms to ensure oversight and enforcement at such entities. They will have to ensure confidentiality of surveillance data and restrict data collection to essential information disclosed to the fintechs for specified purposes.
“The SRO-FT should deploy suitable surveillance mechanisms for effective monitoring of the fintech sector to detect and highlight exceptions. This should involve the use of tools and techniques to assess the activities of industry participants, ensuring a proactive approach to maintaining integrity and compliance,” the RBI said.
