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Reserve Bank of India (RBI) plans to move to a self-regulatory regime for its Regulated Entities

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The Reserve Bank of India (RBI) has recently issued a Draft Omnibus Framework recognising Self-Regulatory Organisations (SROs) for Regulated Entities (REs) of the Reserve Bank of India (RBI).  

The present draft issued by the RBI for public comments has inter alia covered the following:  

1. Characteristics: An SRO shall operate under regulatory oversight to enhance compliance, with key features including authority from membership agreements to enforce ethical and governance standards, strong governance mechanisms, transparent processes for rule-making and enforcement, and a focus on improving compliance culture, establishing standards of conduct, and handling disputes through standardized procedures.  

2. Objectives: The SRO shall aim to improve its sector by fostering compliance, innovation, and ethical conduct within the broader financial system. Emphasis is placed on developing and adhering to robust self-regulatory principles, promoting a culture of compliance, supporting smaller entities, and acting as a collective voice in engagements with regulatory bodies. The SRO shall play a pivotal role in addressing industry concerns, ensuring equitable treatment, and sharing sectoral information with the RBI to aid policymaking and foster innovation.  

3. Responsibilities: The SRO shall have a dual responsibility of promoting best business practices among its members, framing a code of conduct, overseeing compliance, and establishing a fair membership fee structure. Simultaneously, as an ally to the Reserve Bank, it shall ensure and promote compliance, sector development, and stakeholder protection. This involves reporting sector developments, promptly notifying the regulator of member violations, submitting periodic reports, responding to assignments, participating in interactions, and complying with specified directions.  

The regulations also include Governance Framework for SROs, Application process and membership conditions.  

Similarly, SEBI has also had issued the SEBI (Self-Regulatory Organisations) Regulations, 2004 however they are in force only in relation to distributors engaged by Asset Management Companies of Mutual Funds and Portfolio Managers. But, that remained in litigation all the way till the Supreme Court. However, SEBI in the recent past has encouraged moving towards more self regulation. Recently, the SEBI Chairperson Smt. Madhabi Puri Buch asked AMFI (Association of Mutual Funds in India) to constitute an ethical committee. Similarly, SEBI Whole-Time Member Mr. Ananth Narayan also recently urged the AIF industry to set up a self-regulatory organisation.  

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

Readers are welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com

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