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The Reserve Bank of India (RBI) has released a draft framework urging Indian financial technology (fintech) firms to establish a self-regulatory organization (SRO) dedicated to ensuring statutory and regulatory compliance. The central bank emphasized that this SRO would play a crucial role in strengthening governance standards and addressing the evolving needs and challenges within the fintech sector.

This initiative comes at a time when the fintech industry in India is experiencing rapid growth, driven by increasing demand for digital payments and borrowings. In September, RBI Governor Shaktikanta Das had encouraged fintech firms to collaborate in forming such a regulatory body.

The RBI underscored the importance of achieving a delicate balance between fostering innovation within the industry and meeting regulatory priorities to safeguard consumers and manage risks effectively. The draft framework suggests that self-regulation is a preferred approach to strike this balance.

According to the proposed norms, the SRO’s primary responsibilities would include ensuring adherence to industry standards and establishing a transparent communication channel with the RBI. Additionally, the organization is expected to collaborate with the RBI in developing and updating taxonomy for fintech entities, carry out assigned tasks, and provide information as directed by the central bank.

The RBI retains the authority to inspect the books of the SRO or arrange for their audit. The SRO’s board is required to implement a framework for ongoing monitoring of the ‘fit and proper’ status of its directors.

The central bank has invited feedback on the draft framework until the end of February. After considering the input received, a final framework for the fintech self-regulatory body will be issued.