In a significant move towards fostering innovation while maintaining regulatory integrity, the Reserve Bank of India (RBI) has unveiled a ‘Draft framework for recognizing Self-Regulatory Organizations (SRO) for the fintech Sector.’ The framework reflects a strategic step in balancing the dynamic landscape of financial services, driven by the rapid evolution of fintechs.
Fintechs play a pivotal role in redefining financial services by saving time, enhancing access, and lowering costs. At the same time, the sector raises concerns relating to customer protection, data privacy, cyber security, grievance handling, internal governance, financial system integrity, and the like. While the innovation and dynamism of fintechs needs to be harnessed, the emerging risks require to be appropriately managed.
In such a context, approach to regulation should be imaginative, adaptive, flexible, and proportionate to the perceived risks. In particular, an effective regulatory approach should maintain the balance between maximising the creative potential of fintechs, while minimising the idiosyncratic risks they pose to the financial system.
“Fintechs are significantly reshaping the landscape of financial services by streamlining processes, improving accessibility, and reducing costs. 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,” RBI said in a release.
It further added, “Self-regulation within the Fintech sector is a preferred approach for achieving the desired balance. Accordingly, the Reserve Bank has today placed on its website, a ‘Draft framework for recognising Self-Regulatory Organisations (SRO) for Fintech Sector’. The draft framework lays down the characteristics of a Fintech SRO, and includes, inter-alia, functions, governance standards, etc.”
Recognizing the collaborative nature of such initiatives, the RBI is actively seeking comments and feedback from stakeholders and members of the public. “Comments / Feedback from stakeholders and members of the public on the draft framework may be sent by end February 2024, through e-mail. The final framework will be issued taking into account stakeholder and public responses,” the bank stated.