RBI publishes draft framework for SRO in the fintech sector

author Sheena Khan

calender January 16, 2024

RBI Publishes Draft Framework for SRO in the Fintech Sector

The Reserve Bank of India (“RBI”) on January 15, 2024, released a draft framework (“Framework”) that outlines the broad responsibilities, functions, governance as well as the eligibility criteria for the purpose of setting up a self-regulatory organization in fintech companies (“SRO-FT”).

The framework mentions that the RBI would invite applications for the SRO-FT (either for the entire sector or for specific sub-sectors). Moreover, the framework also mentions that the number of applications as well as the nature of applications received would be a determining factor for the number of SRO-FTs to be recognized. The Framework provides for various documents/information which are required to be accompanied with the application, which includes the MoA and AoA of the SRO-FT, details of the constitution of its Board, roles / responsibilities of its management, and the manner in which its operations would be undertaken, etc.

It is further to be noted that the Framework also provides for certain characteristics that the SRO-FTs are expected to have in order to operate in a responsible and a credible manner. These include that an SRO-FT is expected (among others) to be a true representative of the Fintech Sector, should be development oriented, be a legitimate arbiter of disputes, etc. It should also encourage its members for adherence to regulatory priorities and be a repository of information.

As regards the eligibility to be set up as an SRO-FT, the applicant making the application (“Applicant”) should be a not-for-profit company registered under Section 8 of the Companies Act, 2013. Further, while the Framework mentions that “The applicant should have sufficient net worth and demonstrate the capability of establishing the necessary infrastructure to fulfil the responsibilities of SRO-FT effectively, and consistently”, the framework doesn’t mention the minimum net worth or the threshold for necessary infrastructure. The SRO-FT will also be required to have a system that would manage ‘user harm’ instances which come to its notice. Further, the Framework also provides for a ‘fit-and-proper criteria’ for the Board of Directors (BoD) and the Key Manegerial Persons (KMP) of the SRO-FT, wherein they are required to adhere to professional competence and should have a reputation for being fair. If the Applicant fulfils the eligibility criteria and is deemed suitable, the Reserve Bank would issue a ‘Letter of Recognition’ to the SRO-FT (subject to certain conditions as laid down within the Framework).

As regards functions of the SRO-FTs, the RBI in the Framework stated that SROs for the fintech sector should operate independently, i.e. free from the influence of any single member or group of members. They are further required to be development-oriented. Moreover, the SRO-FT is required to establish “a grievance redressal as well as dispute resolution framework for its members” as laid down in the Framework. It has further been laid down that the SRO-FTs should work towards achieving the highest standards of governance while upholding transparency, accountability, integrity, fairness, responsiveness, and compliance with all relevant laws and regulations.

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