The Reserve Bank of India on Thursday issued a draft omnibus framework for Self-Regulatory Organisations (SROs) for banks, NBFCs and other entities regulated by it. SROs enhance the effectiveness of regulations by drawing upon the technical expertise of practitioners and also aid in framing/ fine-tuning regulatory policies by providing inputs on technical and practical aspects, nuances and trade-offs involved, the draft said.
According to the central bank, SROs can also help in fostering innovation, transparency, fair competition and consumer protection.
In sum, self-regulation shall complement the extant regulatory/ statutory framework for better compliance, in letter and spirit, the draft said.
“… the omnibus SRO framework prescribes the broad objectives, functions, eligibility criteria and governance standards, which will be common for all SROs, irrespective of the sector,” as per the ‘Draft Framework for comments Omnibus Framework for recognising Self-Regulatory Organisations (SROs) for Regulated Entities (REs) of the Reserve Bank of India’.
The proposed framework also lays down the broad membership criteria and other terms and conditions to be followed by SROs for grant of recognition by RBI.
According to the proposal, a SRO should have sufficient authority which is derived from membership agreements to set ethical, professional and governance standards and enforce these standards on the members.
SROs should have objective, well-defined and consultative processes to make rules relating to conduct of its members and shall be able to enforce these rules.
Further, the draft said SROs should put in place well-defined and transparent processes and procedures for overseeing activities of their members.
It should establish clear standards of conduct and specify consequences for violation of agreed rules/ codes.
SROs should develop standards for improving compliance culture and adherence by its members to the rules and regulations framed by RBI, the draft said.
The draft has also proposed eligibility criteria, governance, and application for recognition of SROs, and also said that membership in a SRO would be voluntary for the regulated entities.
Comments on the draft have been sought till January 25, 2024.
