The Reserve Bank of India (RBI) recently released a preliminary framework for self-regulatory organisations (SROs) governing banks, NBFCs and other entities under its regulation. The RBI has invited comments on this draft until 25 January 2024.
To qualify for an SRO license, applicants need to establish a not-for-profit company with sufficient net worth and the capability to create the necessary infrastructure for sustained responsibilities. They must also represent their respective sector, hold specified memberships or present a clear roadmap to obtain these memberships within a reasonable timeframe.
The RBI emphasised that neither the applicant nor its directors should be involved in any legal proceedings detrimental to the sector's interests. Additionally, they should have a clean record without convictions related to moral turpitude/economic offenses. Applicants must meet stringent 'fit and proper' criteria in all aspects.
RBI Governor Shaktikanta Das previously suggested that fintech firms form an industry SRO. Earlier reports mentioned the Digital Lenders Association of India (DLAI) working on a code of conduct, which would serve as a framework for its proposed SRO, applicable to over 80 fintech members. Similarly, the Fintech Association for Consumer Empowerment (FACE) had filed a separate SRO application in January 2022.
The draft framework outlined that SROs should maintain professional management with provisions in their Articles of Association (AoA) ensuring the same. A key requirement is that SRO directors must continually meet the 'fit and proper' criteria as established by the SRO board. At least one-third of the board, including the chairperson, should be independent and not actively associated with the regulated entities.
Any changes in directorship or adverse information about a director must be promptly reported to the RBI. The RBI reserves the right to revoke recognition if an SRO's functioning is deemed detrimental to public interest. SROs are expected to regularly update the RBI on sector developments and immediately report any violations by their members. They must also undertake tasks assigned by the RBI, review proposals, and provide requested data periodically or as advised.