It is important to recognise that regulations play an important role in evolution and change. In a significant move, the Reserve Bank of India announced that it would release an omnibus framework for recognising SROs for various Regulated Entities (REs) of the Reserve Bank.
The Reserve Bank Governor Shaktikanta Das had already mentioned about setting up an SRO for the FinTech sector a month back at the Global FinTech Fest, where he highlighted on the importance of SROs and that he looks forward to having an SRO for the FinTech sector by the upcoming year.
“In view of the potential role Self-Regulatory Organisations (SROs) in strengthening compliance culture among their members and also providing a consultative platform for policy making, it has been decided to issue an omnibus framework for recognising SROs for various Regulated Entities (REs) of the Reserve Bank,” RBI governor Shaktikanta Das said during his monetary policy speech on Friday.
He asserted that the omnibus SRO framework shall prescribe the broad objectives, functions, eligibility criteria, governance standards, etc., which will be common for all SROs, irrespective of the sector.
“The Reserve Bank may prescribe sector-specific additional conditions at the time of calling for applications for recognising such SROs. To begin with, a draft of the omnibus framework will be released for stakeholder comments,” he further added.
A month back the Apex bank’s governor had urged fintechs to establish Self Regulatory Organisations (SROs) themselves upon discussing with the Reserve bank for formation of SROs. He had highlighted that it would give opportunity to fintechs to voice requirements better and all aspects of regulation won’t be burdened on Reserve Bank, some aspects SROs will be able to look after.
Speaking on the same lines, Ajay Kumar Cho had recently said that regulations may or may not come, it may be proportionate or gradual, but the best system for the ecosystem to grow is self governance standards, which can be prescribed and implemented through the SROs.
“They can play a very complimentary role. They can prescribe governance standards for the fintechs. That can be the front for the regulator. I believe together regulator and SROs can do wonderfully well and take this ecosystem further ahead,” he added.
A self-regulatory organization is an organization that exercises some degree of regulatory authority over an industry or profession, with a regulator at the back.
Industry experts have said that effective governance in fintechs will require a collaborative effort, industry associations can facilitate development of best practices. Good governance must focus on ethical conduct, risk management, etc.