In the rapidly evolving landscape of the fintech sector, the Reserve Bank of India (RBI) Governor has called upon fintech entities to establish Self-Regulatory Organizations (SROs).
What is an SRO (Self-Regulatory Organization)?
- An SRO is a non-governmental organization tasked with creating and enforcing the rules and regulations governing the conduct of players in a certain industry.
- An SRO’s main goals are to protect consumer interests, preserve moral standards, advance equality, and foster professionalism in the sector.
- SROs typically work together with all industry stakeholders to develop and implement regulations.
Key Characteristics of an SRO
- SROs provide impartial oversight mechanisms for self-regulatory procedures, ensuring that industry participants act within rules and accept sanctions when appropriate.
- Beyond Industry Interests: SROs go above and beyond the constrained objectives of the industry. They seek to safeguard not only key actors in the sector but also employees, clients, and other ecosystem constituents.
- Addendum to Current Regulations: While SROs develop rules, benchmarks, and enforcement procedures, they do not take the place of pertinent legislation or administrative rules. Instead, they supplement already-in-place legal systems.
Functions of an SRO
- Communication Channel: SROs act as a conduit for information exchange between their members and regulatory bodies like the RBI.
- Setting Standards: SROs aim to create industry norms and minimum requirements, encouraging professionalism and sound business practices among its members.
- Training and Awareness: To promote industry best practices, SROs teach the personnel of their members and hold awareness campaigns.
- Grievance Redressal: To address problems within the industry, they create standard grievance redressal and conflict management frameworks.
Why is an SRO Necessary?
- SROs can be crucial in ensuring the fintech sector’s ethical standards are upheld and responsible growth as it continues to develop.
- They deal with important issues like risk management, data privacy, cybersecurity, and market integrity.
- SROs help consumers, investors, and regulators develop a sense of trust.
RBI’s Expectations from Fintech Players
The Reserve Bank of India expects fintech companies to:
1. Evolve industry best practices and privacy/data protection norms in compliance with local laws.
2. Set standards to prevent mis-selling and promote ethical business practices.
3. Ensure transparency in pricing.
- The RBI Governor has encouraged fintechs to establish an SRO voluntarily.
Benefits of an SRO
- SROs have extensive industry knowledge, making them ideal participants in educational programs and industry debates.
- Standardized Conduct: SROs support a uniform code of conduct that promotes moral business behaviour, ultimately enhancing industry confidence.
- SROs play the watchdog role in the sector, stopping unethical and unprofessional behaviour.