RBI proposes empowered SROs to set and enforce financial standards

Self-Regulatory Organisations (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.

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, 2024.

The SROs should also put in place transparent processes and procedures for overseeing the activities of their members. They should establish clear standards of conduct and specify consequences for violation of agreed rules/ codes, the framework said.

Compliance standards

The SRO should develop standards for improving compliance culture and adherence by its members to the rules and regulations framed by the RBI.

The SRO should devise and implement standardised procedures for handling disputes among members, including processes to resolve these disputes through a transparent and consistent dispute resolution/ arbitration mechanism.

“The SRO should have suitable surveillance methods for effective monitoring of the sector,” RBI said.

The Central Bank observed that with the growth of the Regulated Entities (REs) in terms of number as well as scale of operations, increase in adoption of innovative technologies and enhanced customer outreach, a need is felt to develop better industry standards for self-regulation.

It emphasised that 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.

RBI said the SRO should keep it regularly informed of the developments in the sector. It should also promptly inform the Reserve Bank about any violation by its member of the provision of the Acts or the rules/ guidelines/ regulations/ directions issued by the Reserve Bank, that comes to its notice.

“The SRO should submit its annual report to the Reserve Bank, within three months of completion of the accounting year. The SRO shall also submit the periodic/ad-hoc returns as may be prescribed by the Reserve Bank,” per the draft.

Reserve Bank may inspect the books of the SRO or arrange to have the books inspected by an audit firm. The SRO will be obligated to provide the required information to the inspection team to conduct of inspection.

“It is expected that the SRO functions above the self-interests and addresses larger concerns of the industry and financial system as a whole. While acting as the industry representative, the SRO is expected to ensure equitable and transparent treatment for all its members,” per the draft.

RBI said one of the main objectives of the SROs would be to collect and share relevant sectoral information with it to aid in policymaking. The SRO should also use the information to foster innovation and coordinate the introduction of new products within the broader regulatory framework set by the Reserve Bank.

Code adherence

The Central Bank said SRO must frame a code of conduct to be followed by its members and monitor adherence to the code as well as compliance with the regulatory instructions by its members.

RBI underscored that the SRO should establish a grievance redressal and dispute resolution/ arbitration framework for its members and offer counselling on restrictive, unhealthy and other practices which may be detrimental to the growth of the sector.

The dispute resolution process should consistently use efficient, fair and transparent policies and procedures that are in line with the regulatory and statutory requirements.

“The SRO shall promote knowledge of statutory/ regulatory provisions and provide necessary resources for the exchange of expertise and experience among members. It may also arrange for training programmes for skill development and awareness programs on contemporary issues for its members,” the draft said.

COMMENT NOW