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Source: The post is based on the article “Why the RBI has proposed setting-up a Self Regulatory Organisation for fintechs” published in Indian Express on 8th September 2023
What is the News?
The Reserve Bank of India(RBI) Governor has called upon fintech entities to establish Self-Regulatory Organizations (SROs).
What are Self-Regulatory Organizations (SROs)?
Source: Economic Times
SRO is a non-governmental organization that sets and enforces rules and standards relating to the conduct of entities in the industry (members) with the aim of protecting the customer and promoting ethics, equality and professionalism.
SROs typically collaborate with all stakeholders in framing rules and regulations.
Their self-regulatory processes are administered through impartial mechanisms such that members operate in a disciplined environment and accept penal actions by the SRO.
Regulations by SRO supplement but do not replace applicable laws or regulations.
What is the need for an SRO?
Firstly, SROs could play a pivotal role in the fintech industry by promoting responsible practices and maintaining ethical standards.
– There have been many instances where a few fintech players were involved in unethical practices such as charging exorbitant higher interest rates and harassment of borrowers for recovering loans.
Secondly, by proactively addressing issues like market integrity, conduct, data privacy, cybersecurity, and risk management, SROs can help build trust among consumers, investors and regulators.
What are the functions of SRO?
Communication: Acting as a link between members and regulatory bodies like the RBI.
Standards: Setting industry benchmarks and promoting professional behavior.
Training: Providing training and awareness programs for members.
Dispute Resolution: Establishing a uniform grievance resolution framework.
What are the advantages of SRO?
Expertise: SROs are experts in their industries, providing valuable knowledge and insights to their members.
Ethical Standards: They enforce ethical standards among their members, fostering trust in the industry.
Oversight: SROs act as watchdogs, preventing unprofessional practices.
