Fintechs should create self-regulatory body to ensure statutory compliance: RBI draft norms

The Reserve Bank of India (RBI) on January 15 issued a draft framework for a self-regulatory body for financial technology (fintech) companies.

The fintech firms should create a self-regulatory organisation (SRO) that will ensure statutory and regulatory compliance, the RBI said in the draft framework.

An SRO is aimed at establishing codes of conduct for its fintech members to foster transparency, fair competition, and consumer protection.

According to the draft framework, the self-regulatory body would work towards strengthening governance standards and addressing the sector’s needs and challenges.

“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 central bank said, adding that the self-regulation within the fintech sector is a preferred approach for achieving the desired balance.

In September, RBI Governor Shaktikanta Das had urged fintech companies to form such a self-regulatory body.

The draft framework comes at a time when the fintech industry is growing at a fast speed due to strong demand for digital payments.

The self-regulatory organisation would ensure adherence to industry standards and facilitate a transparent communication channel with the RBI, according to the draft norms.

The organisation will also have to consult the RBI for developing and updating the taxonomy for the fintech sector, to carry out any tasks assigned to it, and to supply information as directed by the central bank. 

The books of the fintech self -regulatory body can be inspected by the RBI or it can arrange to have them audited.

As per the draft, the board of the self-regulatory body should put in place a framework for the ongoing monitoring of the “fit and proper” status of its directors.

On the draft framework, the feedback has been invited by the central bank by February-end. After that, a final framework will be issued.