RBI issues draft framework for fintech self-regulatory body

Financial technology (fintech) firms should create a self-regulatory organisation (SRO) that will ensure statutory and regulatory compliance, the Reserve Bank of India (RBI) said in a draft framework released on Monday.

The body would work towards strengthening governance standards and addressing the sector's needs and challenges, said the banking regulator.

The draft framework comes at a time when the fintech industry is growing at a break-neck speed due to surging demand for digital payments and borrowings. In September, RBI Governor Shaktikanta Das had urged fintech firms to create such a body.

"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 RBI said.

Self-regulation within the fintech sector is a preferred approach for achieving the desired balance, it added.

"A proactive SRO should be capable of motivating its members to align with regulatory priorities. This would involve facilitating communication between industry players and regulatory bodies, advocating for necessary changes, and promoting a culture of compliance," said RBI.

As per the draft norms, the SRO would ensure adherence to industry standards and facilitate a transparent communication channel with the RBI.

The organisation is also expected to consult the RBI in developing and updating the taxonomy for fintechs, to carry out any tasks assigned to it, and supply information as directed by the central bank.

The RBI can inspect the books of the SRO or arrange to have the books audited.

The SRO's board should put in place a framework for the ongoing monitoring of 'fit and proper' status of its directors.

The central bank has invited feedback on the draft framework by February-end, after which a final framework will be issued.

With inputs from Reuters