The Reserve Bank on Monday proposed a framework for recognising Self-Regulatory Organisations (SROs) for the fintech sector to achieve a balance between innovation and regulations, to protect interests of consumers.
FinTechs are significantly reshaping the landscape of financial services by streamlining processes, improving accessibility, and reducing costs, the central bank said, while issuing a draft framework for recognising Self-Regulatory Organisations for FinTech Sector (SRO-FT).
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, RBI said.
Self-regulation within the finTech sector is a preferred approach for achieving the desired balance, said the draft on which comments have been sought by the end of February 2024.
According to the draft, the Reserve Bank would invite applications for the SRO for the fintech sector, either for the entire sector or for specific sub-sectors, as and when required.
The number of SRO-FTs to be recognised would be considered based on the number and nature of applications received.
"The SRO-FT is expected to operate objectively, with credibility and responsibility under the oversight of the regulator.
"It should strive towards healthy and sustainable development of the FinTech sector and, if necessary, identify a glide path to a phased regulatory compliance," the draft said.
As per the draft, an SRO-FT, which would be a not-for-profit company, should be a true representative of the fintech sector, development-oriented, independent from influence, and a legitimate arbiter of disputes.
It should also encourage members to adhere to regulatory priorities and repository of information.
"The applicant (for SRO-FT) should have sufficient net worth and demonstrate the capability of establishing the necessary infrastructure to fulfill the responsibilities of SRO-FT effectively, and consistently," the draft said.
Also, an SRO-FT should have a robust IT infrastructure and the ability to deploy technological solutions within a reasonable timeframe.
"The applicant SRO-FT 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," it said.
Failure to demonstrate or attain comprehensive membership could result in denial or revocation of recognition, the RBI's proposal said.
On functions and responsibilities of SRO, the draft said it should guide the conduct of its members, ensure that they adhere to industry standards, comply with relevant laws and regulations, and maintain high ethical standards.
"This involves establishing and enforcing guidelines for consumer protection, data security, data privacy, etc. The SRO-FT should play a crucial role in promoting responsible innovation by providing a framework that encourages responsible experimentation," the draft added.
Further, the SRO-FT should establish a grievance redressal as well as a dispute resolution framework for its members.
The draft said SRO-FT would be expected to play a pivotal role in ensuring compliance with statutory and regulatory frameworks, adherence to industry standards and best practices, and facilitating transparent communication channels with the Reserve Bank.