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Reserve Bank of India (RBI) Bank of India puts out standards for self-regulation of the FinTech Sector

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FinTech

The financial landscape of India is undergoing a revolutionary transformation, with FinTechs leading the charge. The RBI being one the sectoral regulators aims to effectively regulate such FinTechs in a manner which would maintain the balance between maximising the creative potential while minimising the idiosyncratic risks they pose to the financial system. In this background, the RBI has recently issued its draft Framework for Self-Regulatory Organisations (SRO) in the FinTech Sector.

The RBI expects the FinTech SRO to operate objectively, with credibility and responsibility under its oversight. Through the draft, the RBI seeks for the SRO to be (i) development-oriented; (ii) independent from influence; (iii) an arbiter of disputes; (iv) encouraging members for adherence to regulatory priorities;  and (v) a repository of information.

The key functions of SRO are to guide its members by ensuring adherence to industry standards, legal and regulatory compliance, and upholding high ethical standards. It encompasses establishing and enforcing guidelines for consumer protection, data security, data privacy, etc., fostering responsible innovation, and addressing grievances, conflicts of interest, and disputes. Through these responsibilities, the SRO-FT will serve as a steward of trust and stability in the FinTech sector, maintaining a delicate balance between innovation and integrity. Key functions include standard-setting, oversight and enforcement, developmental initiatives, and grievance redressal. The SRO-FT’s role is pivotal in shaping industry conduct, fostering compliance, and contributing to the sector’s responsible growth. 

Further, the RBI expects the SRO to play a crucial role in ensuring adherence to statutory and regulatory frameworks, compliance with industry standards and best practices, and in establishing a transparent communication channel with the RBI. Further their responsibilities towards RBI include relaying sector insights, addressing regulatory concerns, and collaboratively developing the FinTech sector. The SRO-FT shall act as a bridge, fostering cooperation and providing policies suited to the dynamic FinTech landscape. Specific responsibilities of the SRO towards the RBI will also involve acting as a collective voice in engagements, updating on sector developments, consulting on taxonomy, executing assigned tasks, submitting reports, participating in periodic interactions etc. The SRO-FT must also comply with RBI’s inspections and directives, providing guidance on regulating FinTech entities.

The RBI has sought comments on the draft framework from stakeholders by end of February 2024.

A copy of the draft framework is enclosed herewith and available on the Reserve Bank of India (RBI) website.

Readers are welcome to share their views with Regstreet Law Advisors on info@regstreetlaw.com

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