The Reserve Bank of India has published a draft framework for recognising self-regulatory organisations (SRO) for the fintech sector. According to the official release from the RBI, the financial services landscape is undergoing a significant transformation with the rise of fintechs, which are streamlining processes, improving accessibility, and reducing costs.

Moreover, the RBI highlighted that obtaining a balance between fostering industry innovation and addressing regulatory priorities to safeguard consumers and manage risks is important for optimising the fintech sector's contributions. Therefore, the bank has identified self-regulation as a preferred approach within the fintech sector. In this context, the Reserve Bank has published a 'Draft Framework for Recognising Self-Regulatory Organizations (SRO) for the FinTech Sector' on its website.

This draft framework outlines the essential characteristics of a fintech SRO, encompassing functions, governance standards, and other pertinent aspects. Stakeholders and members of the public are invited to provide comments and feedback on the draft framework until the end of February 2024. Submissions can be made via email, and the final framework will be formulated taking into consideration the responses received from stakeholders and the public.

Self-regulation advantages according go the RBI The preliminary section of the framework addresses the need to adopt a culture of self-governance in order to ensure that fintech entities could proactively establish and adhere to industry standards and best practices. The draft further highlights that this proactive approach could allow the sector to demonstrate commitment to responsible conduct and innovation, even in the absence of formal regulatory frameworks. Another advantage of self-regulation according to the RBI includes adaptability to rapid technological advancements and evolving market dynamics.

In essence, pursuing self-regulation could enable the fintech sector to align its growth with self-imposed standards, be responsive to peer demands, and adhere to exemplary behavioural norms. The RBI believes that with the right design, self-regulation has the potential to support self-discipline, promote high levels of internal governance, and facilitate an organised and organic development of the fintech sector. On the subject of self-regulatory organisations, the paper touches on the importance of a well-defined structure based on consensus and cooperation among entities to achieve a proper implementation of self-regulation.

The newly-released document emphasises that, while formal recognition is not a prerequisite, a fintech SRO (referred to as SRO-FT) with formal acknowledgment from regulators could enhance legitimacy and provide regulatory assurance. .