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Fintech firms and industry bodies welcome the omnibus framework for recognising self-regulated organisations (SROs) for regulated entities (REs). The sector notes that it will contribute to better policy outcomes with closer exchange and engagement between the market and regulator.
“It clarifies to REs and aspiring SROs the regulatory expectations on governance, activities, resources, expertise, innovation, customer protection and individual and collective duties for effective self-regulation. In a fast-evolving and innovating digital lending industry, such a framework becomes even more critical to keep a pulse on emerging trends for response. Indeed, it will contribute to better policy outcomes with closer exchange and engagement between the market and regulator. As an industry body of digital lending, we look forward to converging our members to the promise and prospects of SROs,” said Sugandh Saxena, CEO, Fintech Association for Consumer Empowerment (FACE).
SROs should have sufficient authority, which is derived from membership agreements, to set ethical, professional and governance standards and enforce them on the members, according to RBI’s draft “Omnibus Framework for recognising SROs” for lenders regulated by it.
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The SRO should have objective, well-defined and consultative processes to make rules relating to the conduct of its members and should be able to enforce these rules, per the draft. RBI has invited comments/ feedback from the stakeholders and members of the public on the draft omnibus framework by January 25.
SRO framework for digital lending has been in making for two years now. The RBI WG Report on Digital Lending in Nov 2021 first recommended setting up of an SRO covering the participants (REs DLAs/LSPs) in the digital lending ecosystem.
In August 2022, the central bank accepted the recommendation of the WG report on the SROs in-principle and with initial contours of functions they are expected to perform. In the last few months, RBI at the highest levels has signalled multiple times to the industry on directionally moving to self-regulation to improve industry practices in a fast-evolving market and improve compliance and policy outcomes.
This framework will not only help foster a culture of compliance and openness but also encourage conformity to regulatory standards, said fintech firms. It offers the sector a chance to actively participate in the development of standards and rules, which will eventually benefit consumers by fostering greater innovation, equitable competition, and effective regulation.
“The RBI’s proposed omnibus framework for SROs is a step in the right direction for encouraging cooperation and innovation in the BFSI industry. The focus on utilising technical know-how and the potential for SRO membership fit perfectly with the ever-changing digital lending environment. The SRO once set up will act as a watchdog for the sector and help encourage members to adopt more responsible and ethical practices,” said Gaurav Jalan, Founder & CEO - mPokket.
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