RBI releases draft norms for fintech self-regulatory organisations

The Reserve Bank of India’s (RBI’s) draft norms for self regulatory organisations for the fintech sector (SRO-FT) have proposed that such entities should have a robust IT infrastructure and the ability to deploy technological solutions within a reasonable timeframe. The applicant for such an entity should have sufficient net worth and demonstrate the capability of establishing the necessary infrastructure to fulfil the responsibilities of an SRO-FT effectively, RBI said. The draft norms, which were released on Monday, said SRO-FTs should strive towards healthy and sustainable development of the fintech sector.

And if necessary, they must identify a glide path to a phased regulatory compliance. It said the SRO should be motivating its members to align with regulatory priorities and develop a culture of compliance. At the same time, the SRO-FT should be development-oriented, actively contributing to the growth and evolution of the industry, the norms said.

The draft framework said that to maintain credibility, the SRO-FT should operate independently, free from the influence of any single member or group of members. “The SRO-FT should maintain impartiality, avoid conflicts of interest, and ensure unbiased oversight over its members. Independence would enhance the reputation of the SRO-FT as a neutral and reliable entity.

It is essential for gaining the trust of both industry participants and regulators,” it said. Emphasising that a SRO-FT should be capable of motivating its members to align with regulatory priorities and promote a culture of compliance, the norms said SRO-FT, 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. “By actively participating in the regulatory dialogue, the SRO-FT is expected to help in shaping a regulatory environment that is conducive to innovation, while ensuring consumer protection,” it said.

Membership of the SRO-FT should be voluntary, RBI said. Fintechs would be encouraged by the RBI to become members of a recognised SRO-FT, it added. “RBI’s view on the fit and proper status of the applicant company, board of directors and key managerial person would be final,” the draft norms said.

RBI, if necessary, will nominate observers on the board of the SRO-FT. The draft said RBI could inspect the books of the SRO-FT or arrange to have the books audited by an audit firm. “The SRO-FT would be obligated to provide the required information to the inspection team for the purpose of conduct of inspection / audit.

The expenses of such an inspection would be borne by the SRO-FT,” it said. The SRO should be set up as a not-for-profit company registered under Section 8 of the Companies Act, 2013. The norms said the applicant should represent the fintech sector with membership across entities of all sizes, stages and activities.

If representation is inadequate at the time of application, the application should include a roadmap for achieving this within a reasonable timeline. “Failure to demonstrate or attain comprehensive membership could result in denial or revocation of recognition,” the norms said. The draft norms left it to the sector to decide whether there should be one SRO for fintechs, or multiple SROs.

“Yet another issue that requires discussion is the number of SRO-FTs, which would require recognition. Given the diverse nature of fintechs, restricting to one SRO-FT could dilute some industry concerns. Also, having multiple SRO-FTs could undermine the representative character of self-regulation.

A consensus on these issues would be crucial to the effectiveness of self-regulation,” RBI said. RBI also said that since most entities in the fintech sector are not directly regulated at present, the industry needs to question how an SRO-FT would create incentives for membership. “Should the recognised SRO-FT comprise only of members who are unregulated, or in combination with those who are regulated (even for a part of their activities) is another question that merits discussion,” the norms said.

RBI has sought feedback on the draft norms by February-end. Jatinder Handoo, chief executive officer (CEO), Digital Lenders Association of India (DLAI), said; “…the fact that SROs should be consensus and cooperation based and the nuances of the sector in terms of nature of business and diversity of market players is very well captured. Under the guidance and oversight of RBI, SRO-FT will be able to enhance regulatory compliance culture among fintechs and build capacities of the sectoral players.

” Source: Business Standard The Reserve Bank of India’s (RBI’s) draft norms for self regulatory organisations for the fintech sector (SRO-FT) have proposed that such entities should have a robust IT infrastructure and the ability to deploy technological solutions within a reasonable timeframe. The applicant for such an entity should have sufficient net worth and demonstrate the capability of establishing the necessary infrastructure to fulfil the responsibilities of an SRO-FT effectively, RBI said. The draft norms, which were released on Monday, said SRO-FTs should strive towards healthy and sustainable development of the fintech sector.

And if necessary, they must identify a glide path to a phased regulatory compliance. It said the SRO should be motivating its members to align with regulatory priorities and develop a culture of compliance. At the same time, the SRO-FT should be development-oriented, actively contributing to the growth and evolution of the industry, the norms said.

The draft framework said that to maintain credibility, the SRO-FT should operate independently, free from the influence of any single member or group of members. “The SRO-FT should maintain impartiality, avoid conflicts of interest, and ensure unbiased oversight over its members. Independence would enhance the reputation of the SRO-FT as a neutral and reliable entity.

It is essential for gaining the trust of both industry participants and regulators,” it said. Emphasising that a SRO-FT should be capable of motivating its members to align with regulatory priorities and promote a culture of compliance, the norms said SRO-FT, 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. “By actively participating in the regulatory dialogue, the SRO-FT is expected to help in shaping a regulatory environment that is conducive to innovation, while ensuring consumer protection,” it said.

Membership of the SRO-FT should be voluntary, RBI said. Fintechs would be encouraged by the RBI to become members of a recognised SRO-FT, it added. “RBI’s view on the fit and proper status of the applicant company, board of directors and key managerial person would be final,” the draft norms said.

RBI, if necessary, will nominate observers on the board of the SRO-FT. The draft said RBI could inspect the books of the SRO-FT or arrange to have the books audited by an audit firm. “The SRO-FT would be obligated to provide the required information to the inspection team for the purpose of conduct of inspection / audit.

The expenses of such an inspection would be borne by the SRO-FT,” it said. The SRO should be set up as a not-for-profit company registered under Section 8 of the Companies Act, 2013. The norms said the applicant should represent the fintech sector with membership across entities of all sizes, stages and activities.

If representation is inadequate at the time of application, the application should include a roadmap for achieving this within a reasonable timeline. “Failure to demonstrate or attain comprehensive membership could result in denial or revocation of recognition,” the norms said. The draft norms left it to the sector to decide whether there should be one SRO for fintechs, or multiple SROs.

“Yet another issue that requires discussion is the number of SRO-FTs, which would require recognition. Given the diverse nature of fintechs, restricting to one SRO-FT could dilute some industry concerns. Also, having multiple SRO-FTs could undermine the representative character of self-regulation.

A consensus on these issues would be crucial to the effectiveness of self-regulation,” RBI said. RBI also said that since most entities in the fintech sector are not directly regulated at present, the industry needs to question how an SRO-FT would create incentives for membership. “Should the recognised SRO-FT comprise only of members who are unregulated, or in combination with those who are regulated (even for a part of their activities) is another question that merits discussion,” the norms said.

RBI has sought feedback on the draft norms by February-end. Jatinder Handoo, chief executive officer (CEO), Digital Lenders Association of India (DLAI), said; “…the fact that SROs should be consensus and cooperation based and the nuances of the sector in terms of nature of business and diversity of market players is very well captured. Under the guidance and oversight of RBI, SRO-FT will be able to enhance regulatory compliance culture among fintechs and build capacities of the sectoral players.

” Source: Business Standard.