Font size:
Print
Self-Regulatory Organisations (SROs)
Context:
The Reserve Bank of India (RBI) has recognised the Fintech Association for Consumer Empowerment (FACE) as a self-regulatory organisation (SRO) in the fintech sector.
The Fintech Association for Consumer Empowerment (FACE) is a prominent self-regulatory organisation in India, recognised by the Reserve Bank of India (RBI). Its primary focus is to promote consumer-centric practices within the fintech sector, ensuring that financial services are safe, suitable, and transparent.
More on News:
- The banking regulator received three applications for SRO status.
- One was granted the status, another was asked to reapply after meeting specific requirements, and the third is still under review.
- The total number of RBI-approved SROs is four, with FACE now included.
Current SRO Landscape in India:
- Foreign Exchange Dealers’ Association of India (FEDAI): Established in 1958, this was the first SRO in the banking sector, focusing on foreign exchange.
- It was formed as an association of banks authorised to deal in foreign exchange and is incorporated under Section 25 of the Companies Act, 1956.
- Sa-Dhan: Formed in 1999, it received SRO status in 2015, representing microfinance entities.
- Microfinance Institutions Network (MFIN): Established in 2009, it also gained SRO recognition in 2015.
Overview of SROs:
- These SROs aim to facilitate communication between the RBI and their respective sectors, promote ethical practices, and ensure compliance with regulations.
- Functions: They are expected to monitor compliance, set standards, address grievances, and represent their members in dialogues with regulatory bodies.
The primary function of fintech SROs, as outlined by the RBI, includes:
- Representing all stakeholders in the fintech ecosystem.
- Setting standards and best practices.
- Collecting data, monitoring compliance, and reporting violations.
- Addressing grievances and resolving disputes.
- Raising customer awareness and protecting consumer rights.
- Supporting research and development.
- The RBI’s guidelines emphasise that SROs must operate independently, free from external influence, and be committed to upholding regulatory standards.
- Regulation: In October 2022, the RBI issued draft guidelines for establishing SROs that would oversee payment system operators, including card networks, payment aggregators, and platforms like UPI.
- Upcoming SRO for NBFCs: In June 2024, the RBI invited applications for SRO recognition in the non-banking financial companies (NBFC) sector.
- This independence is crucial for fostering a transparent and accountable environment.
Examples of Financial SROs:
- Financial Industry Regulatory Authority (FINRA): FINRA is one of the most prominent SROs in the United States. It regulates brokerage firms and professionals, enforces rules designed to protect investors, and oversees securities trading in the country.
- New York Stock Exchange (NYSE): The NYSE is another major SRO that regulates its members and ensures that trading practices are fair and transparent.
Challenges and Considerations:
- Need for SROs: Questions arise about the necessity of SROs in banking, given the effectiveness of existing industry bodies.
- Heterogeneity of NBFCs: The diverse nature of NBFCs raises concerns about limiting SROs to two, potentially impacting representation.
- Tech Giants: The role of large technology companies in financial services remains ambiguous under current guidelines.
- Overlapping Regulations: With various RBI departments overseeing different aspects of the fintech ecosystem, clarity and coherence are necessary.
Conclusion:
One approach could be to establish SROs for different segments based on their primary activities and the relationships among entities. Additionally, regulated and unregulated entities could be treated differently. The key to effective implementation of the SRO regime is to avoid overlap.
