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The RBI on Monday released a 'draft framework for recognising Self-Regulatory Organisations (SRO) for FinTech Sector', laying down the characteristics of a FinTech SRO, and includes the required functions and governance standards.

FinTechs are significantly reshaping the landscape of financial services by streamlining processes, improving accessibility, and reducing costs. Achieving a healthy balance between facilitating innovation by the industry on the one hand, and meeting regulatory priorities in a manner that protects consumers and contains risk, on the other, is crucial to optimising the contribution of the FinTech sector, the RBI said.

"Self-regulation within the FinTech sector is a preferred approach for achieving the desired balance," the central bank stated.

According to the RBI draft framework, the SRO-FT would derive its strength from its membership, ensuring that it is truly representative of the FinTech sector. Through comprehensive membership agreements that encompass a broad spectrum of industry players, the SRO-FT should gain the legitimacy and credibility to not only frame baseline standards and rules of conduct codes, but also to effectively monitor and enforce them.

The SRO-FT must be looked up to and accepted by the industry as the key body for setting market standards, defining rules of conduct and ensuring voluntary adoption of the common framework by its members, the RBI said.

The framework also states that the SRO-FT should be development-oriented, actively contributing to the growth and evolution of the industry. This involves providing specialised knowledge and expertise, offering guidance, and contributing to capacity building through training programs, and prescribing minimum eligibility criteria for its members.

Also, members should perceive the SRO-FT as a legitimate arbiter of disputes. This would require a transparent and fair resolution mechanism for disputes arising among members that instils confidence in the FinTech industry. By efficiently handling conflicts and grievances, the SRO-FT would contribute to a more stable and harmonious FinTech environment.

A proactive SROFT should be capable of motivating its members to align with regulatory priorities. This would involve facilitating communication between industry players and regulatory bodies, advocating for necessary changes, and promoting a culture of compliance.

The SROFT, as its duty towards ensuring compliance, should be empowered to investigate and take disciplinary action against its members for non-adherence to codes/standards/rules.

The RBI said comments from stakeholders and members of the public on the draft framework may be sent by end February 2024, through e-mail. The final framework will be issued taking into account stakeholder and public responses.