rbi fintech sro: RBI issues draft framework for fintech self-regulatory bodies

The main idea behind the guidelines is to empower the fledgling sector to function and innovate responsibly even in the absence of formal regulations.

“The SRO-FT should play a crucial role in promoting responsible innovation by providing a framework that encourages responsible experimentation,” said the RBI, highlighting the need to balance innovation and regulations.

The SRO-FT should be responsible for addressing cases of grievance, conflict of interest or dispute among its members, the RBI added.

ET wrote on April 21 that the larger fintech industry has been finding it difficult to come together to form an SRO. The conversations around the need to have a self-regulatory mechanism for this sector started in early 2023, but took a formal shape only on October 6, when the RBI announced it in one of its press briefings.

This is the second attempt by the RBI to create an SRO for the sector. In 2020, the financial sector regulator had released guidelines for a payments SRO. While a few entities had applied for the licence, the final approval from the RBI is still awaited.

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“Under the guidance and oversight of RBI, SRO-FT will be able to enhance a regulatory compliance culture among fintechs and build capacities of the sectoral players,” Digital Lenders Association of India chief executive Jatinder Hadoo said.

The regulator has kept the provision for multiple SROs in the sector, but wants every SRO to have adequate members from across the spectrum, like payments and lending.

Given a large chunk of the industry is already regulated, like payment aggregators and digital lending startups, the SRO will need to be responsible for managing unregulated entities in a big way. This could involve loan service platforms, third-party applications on the Unified Payments Interface and others who are not directly within the regulatory ambit.

Navin Surya, an investor in the fintech space, pointed out that this directive from the RBI has opened up a huge opportunity and responsibility for the entire fintech ecosystem to play a role for sustainable growth of the sector.

The RBI has laid out some basic criteria that are needed to become an SRO for the sector. From being a true representative of a wide range of fintech startups to being ‘development centric’, the RBI wants these organisations to handhold early-stage startups to innovate within a regulated environment.

While the RBI did not specify the net worth required to become an SRO, it said the organisation needs to be a ‘not-for-profit’ and be able to deploy technological solutions within a reasonable timeframe.

At least one-third of members on the board, including the chairperson, should be independent, and without any active association with a fintech entity, the RBI said.

Another senior executive at a fintech startup pointed out that most of the experienced finance professionals were associated with fintechs in advisory roles or as independent directors. Perhaps the regulator should define “active association”, the executive added.

The main idea behind the guidelines is to empower the fledgling sector to function and innovate responsibly even in the absence of formal regulations.

“The SRO-FT should play a crucial role in promoting responsible innovation by providing a framework that encourages responsible experimentation,” said the RBI, highlighting the need to balance innovation and regulations.

The SRO-FT should be responsible for addressing cases of grievance, conflict of interest or dispute among its members, the RBI added.

ET wrote on April 21 that the larger fintech industry has been finding it difficult to come together to form an SRO. The conversations around the need to have a self-regulatory mechanism for this sector started in early 2023, but took a formal shape only on October 6, when the RBI announced it in one of its press briefings.

This is the second attempt by the RBI to create an SRO for the sector. In 2020, the financial sector regulator had released guidelines for a payments SRO. While a few entities had applied for the licence, the final approval from the RBI is still awaited.

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“Under the guidance and oversight of RBI, SRO-FT will be able to enhance a regulatory compliance culture among fintechs and build capacities of the sectoral players,” Digital Lenders Association of India chief executive Jatinder Hadoo said.

The regulator has kept the provision for multiple SROs in the sector, but wants every SRO to have adequate members from across the spectrum, like payments and lending.

Given a large chunk of the industry is already regulated, like payment aggregators and digital lending startups, the SRO will need to be responsible for managing unregulated entities in a big way. This could involve loan service platforms, third-party applications on the Unified Payments Interface and others who are not directly within the regulatory ambit.

Navin Surya, an investor in the fintech space, pointed out that this directive from the RBI has opened up a huge opportunity and responsibility for the entire fintech ecosystem to play a role for sustainable growth of the sector.

The RBI has laid out some basic criteria that are needed to become an SRO for the sector. From being a true representative of a wide range of fintech startups to being ‘development centric’, the RBI wants these organisations to handhold early-stage startups to innovate within a regulated environment.

While the RBI did not specify the net worth required to become an SRO, it said the organisation needs to be a ‘not-for-profit’ and be able to deploy technological solutions within a reasonable timeframe.

At least one-third of members on the board, including the chairperson, should be independent, and without any active association with a fintech entity, the RBI said.

Another senior executive at a fintech startup pointed out that most of the experienced finance professionals were associated with fintechs in advisory roles or as independent directors. Perhaps the regulator should define “active association”, the executive added.