Amid transformation of the financial services industry due to technological advancements, fintech firms have emerged as both disruptors and facilitators. Playing a crucial role in redefining the financial services landscape, fintech is also raising concerns regarding customer protection, data privacy, cybersecurity, grievance handling, internal governance and financial system integrity, among others.
Favouring self-regulation in the financial technology sector to balance “facilitating innovation” and protect consumers against risks, the Reserve Bank of India (RBI) has now proposed a framework for self-regulatory organisations (SROs) in the fintech space.
The draft framework aims to establish industry standards, ensure oversight and enforcement, address grievances, and provide dispute resolution in the absence of formal regulations. It outlines the characteristics, functions and responsibilities of a fintech self-regulatory organisation (SRO-FT) and provides information on who can apply to become one.
Applicants should have sufficient net worth and demonstrate capability to establish the necessary infrastructure to meet responsibilities of an SRO-FT. The SRO-FT should encourage its members to comply with regulations while fostering industry growth and development, the draft states.
To maintain credibility, the SRO-FT must operate independently from the influence of any single member or group of members. Independence would boost the SRO-FT’s reputation as a neutral, reliable entity, vital for earning industry and regulator trust. It must remain impartial, avoid conflicts of interest and ensure unbiased oversight of its members.
The draft framework stipulates that the SRO-FT is expected to participate actively in regulatory dialogue to shape a regulatory environment conducive to innovation, while ensuring consumer protection.
Membership of an SRO-FT is voluntary, although fintech companies would be encouraged by the RBI to become members. The draft framework, issued on 15 January 2024, is open for public feedback until the end of February.
RBI Governor Shaktikanta Das has noted that the Indian fintech industry has struggled to establish SROs since discussions began, in early 2023, for the industry to evolve best practices, meet privacy and data protection norms in line with those of the country, establish standards to avoid mis-selling, promote ethical business practices and ensure price transparency.
