RBI wants to regulate the FINTECH sector, creates draft guidelines for Self Regulatory Organizations

The Reserve Bank of India (RBI) has introduced a framework on January 15, aiming to establish Self-Regulatory Organizations (SROs) in the FinTech sector. This initiative is designed to strike a balance between fostering innovation and implementing regulations to safeguard consumer interests.
FinTech’s Impact on Financial Services
According to the central bank, FinTech companies are significantly transforming financial services by improving processes, enhancing accessibility, and reducing costs. In response, the RBI has issued a draft framework for recognizing Self-Regulatory Organizations specific to the FinTech sector (SRO-FT).
Achieving Balance between Innovation and Regulation
The RBI emphasizes the importance of finding a healthy balance between encouraging innovation within the industry and meeting regulatory priorities to protect consumers and manage risks. The draft suggests that self-regulation is a preferred approach to achieve this equilibrium, and public comments on the draft are invited until the end of February 2024.
Application Process for SRO-FT Recognition
According to the draft, the RBI will invite applications for SROs for the FinTech sector, considering either the entire sector or specific sub-sectors as needed. The number of recognized SRO-FTs will depend on the quantity and nature of applications received.
Key Characteristics of SRO-FT
The draft outlines essential characteristics for SRO-FTs, emphasizing their role as objective, credible, and responsible entities under regulatory oversight. SRO-FTs are expected to contribute to the healthy and sustainable development of the FinTech sector while possibly identifying a phased regulatory compliance pathway.
Requirements for SRO-FT Applicants
Applicants for SRO-FT recognition should be not-for-profit entities, genuinely representative of the FinTech sector, development-oriented, independent, and capable of arbitrating disputes. The draft emphasizes the importance of a sufficient net worth, infrastructure, and technological capabilities.
Membership and Representation
SRO-FT applicants should have diverse membership across entities of all sizes, stages, and activities within the FinTech sector. The draft requires a comprehensive representation and provides guidelines for achieving this within a reasonable timeline.
Functions and Responsibilities of SRO-FT
The draft specifies the functions and responsibilities of SRO-FTs, including guiding member conduct, ensuring adherence to industry standards, compliance with laws and regulations, and maintaining high ethical standards. SRO-FTs are expected to play a pivotal role in promoting responsible innovation and establishing grievance redressal and dispute resolution frameworks.
Collaboration with Regulatory Authorities
The SRO-FT is expected to collaborate with regulatory authorities, ensuring compliance with statutory and regulatory frameworks, adherence to industry standards and best practices, and facilitating transparent communication channels with the Reserve Bank of India.