Self-Regulatory Organization (SRO) for the FinTech Sector

The Reserve Bank of India (RBI) recently introduced the Framework for Recognizing Self-Regulatory Organization for the FinTech Sector (SRO-FT) to enhance self-governance and compliance in the industry.

SRO-FT Framework:

1. Definition of Fintech:
   Fintech entities provide technological solutions for delivering financial products and services to businesses and consumers. They may also collaborate with traditional financial institutions for regulatory compliance.

2. Role of SRO-FT:
   The industry-led SRO-FT will establish and enforce regulatory standards, promote ethical conduct, ensure market integrity, resolve disputes, and promote transparency among its members.

3. Applicant Eligibility:

   1. Applicants must be set up as not-for-profit companies with diversified shareholding.
   2. No single entity or acting group should hold 10% or more of the paid-up share capital.

4. Financial Requirements:

   1. Applicants must have a minimum net worth of ₹2 crore within one year of recognition or before commencing operations, whichever is earlier.

5. Board Composition:

   1. At least one-third of board members, including the chairperson, must be independent and without active association with a fintech entity.
   2. The majority of non-independent directors should represent currently unregulated FinTechs.

6. Infrastructure and Capabilities:

   1. Applicants should demonstrate the ability to establish the necessary infrastructure to effectively and consistently act as an SRO-FT.

7. User Harm Management:

   1. The SRO must implement systems to manage instances of user harm, including fraud, mis-selling, and unauthorized transactions.

8. International Outreach:

   1. While SROs cannot open branches outside India, FinTechs domiciled outside India can become members of an SRO.

9. Recognition Process:

   1. The number of recognized SRO-FTs will depend on the received applications, and the RBI reserves the right to grant or deny recognition.
10. RBI's Oversight: RBI can nominate or depute observers on the SRO-FT's board if deemed necessary.

SRO-FT Responsibilities:

1. Regulatory Oversight:

1. 1. SRO-FTs should operate objectively under RBI's oversight and contribute to the healthy development of the FinTech sector.

2. Code of Conduct and Standards:

   1. Develop a code of conduct for members, set industry benchmarks, baseline technology standards, standardized documents, and an accreditation mechanism.

3. Disciplinary Powers:

   1. SRO-FTs should possess adequate powers to investigate and take disciplinary action against members for non-compliance with codes, standards, and rules.

4. Collaboration with RBI:

   1. Relay sector-specific insights, address regulatory concerns, collaborate on sector development, promote cooperation, provide policy recommendations, represent members' interests, share sector updates, and provide relevant data to the RBI.

What is Financial Technology (Fintech)?

1. Fintech refers to new technologies that aim to improve and automate the delivery and use of financial services.
2. It utilizes specialized software and algorithms on computers and smartphones to help individuals, businesses, and organizations better manage their financial operations, processes, and lives.

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