To carry the digital revolution forward, RBI issues draft paper for fintech regulator

• Follow

Of all the showpiece achievements that India can take pride in, the financial technology revolution is certainly at the top, and on January 15, the Reserve Bank of India (RBI) unveiled a draft framework for setting up a self-regulatory body for fintech companies that would make the domain more robust. Reiterating its earlier stance, the central bank said that fintech companies should set up a self-regulatory organisation (SRO) which will work towards ensuring statutory and regulatory compliance for this galloping sector.

In September 2023, the governor of RBI urged fintech companies to form such a self-regulatory body. The regulatory body should introduce codes of conduct that should eventually create a climate of greater transparency, protection of consumer interest and promote fair competition in this domain. The regulatory body would devote itself to turning governance standards more robust and nurturing the needs and challenges of the flourishing industry.

The fintech sector in India is making waves even beyond the country’s borders. Some experts have put the market to reach a size of $2.1 trillion by 2030. It is one of the busiest both in terms of funding and number of users. “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 self-regulatory organisation would ensure adherence to industry standards and facilitate a transparent communication channel with the RBI, according to the draft norms.

The organisation will also have to consult the RBI for developing and updating the taxonomy for the fintech sector, to carry out any tasks assigned to it, and to supply information as directed by the central bank.

The books of the fintech self -regulatory body can be inspected by the RBI or it can arrange to have them audited. The draft has also underscored the need for the self-regulatory body to work out a framework for the “fit and proper” status of its directors.

The RBI has sought feedback from the people by the end of next month. The central bank is expected to go through the feedback to craft the final framework on the self-regulatory body.