Industry bodies are in discussions with the RBI for a fintech SRO (self-regulatory organisation), and a framework for the same is expected by the end of the current financial year, industry participants told businessline.

“Indirectly, every association works as an SRO because they set standards and best practices, which members are expected to follow. What’s lacking is enforcement or authorisation by the regulator for them to start taking action if somebody does not follow the norms. That’s the piece that is under discussion with the industry associations and regulators,” said Navin Surya, Chairman of the Fintech Convergence Council and Organizer and Advisory Board Member of GFF 2023.

The buzz around setting up an SRO has gained ground after both the RBI Governor and Deputy Governor, last week, called for self-regulation among fintechs, and setting up an SRO structure.

While discussions have been on for a few years, a public communication by the regulator reflects that work on the same is expected to pick up pace, industry officials said.

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“RBI will identify an association to form an SRO and fintechs will have to become members and follow the guidelines. Any fintech that chooses not to be part of the SRO may face a backlash, not just from regulators, but also other industry players. For instance, co-lending partnerships for such entities will eventually become a challenge,” said Anuj Kacker, Executive Committee member, DLAI and Co-founder Freo, adding that it is in the best interest of the fintech industry to self-regulate.

RBI’s understanding behind the push for an SRO seems to be that because it can’t govern everybody, it will regulate banks and NBFCs, and through them digital lenders and fintechs. An SRO structure will help avoid over-regulation from these entities, and also create an additional layer of supervision and communication, industry players said.

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“The recognition of SROs by RBI grants us recognition on a formal platform,” said Virender Bisht, Co-Founder & CTO, Niyo, adding that SROs will also help “weed out rogue actors” from the industry.

However, setting up a fintech SRO is not as easy as in other sectors such as microfinance, which are homogenous and have one type of offering. This is the reason discussions regarding the structure, models, framework and representation, among other issues, are taking longer.

“There are multiple products and models within payments and lending. Given the number of segments that exist, complexities might arise, but we are working closely to solve all of them and start forming one,” Surya said.

RBI already has a framework for setting up a payments SRO and is expected to issue one for digital lending and eventually for the overall fintech sector as a whole, sources said, adding that the frameworks will lay down the guidelines for the role and scope of the SROs and what segments and parameters they will cover, as compared to member-driven observations that industry associations follow today.

“One of the key challenges in self-regulating the fintech sector revolves around achieving a balance between profitability and maintaining a 100 per cent customer-centric approach. The regulator’s role is pivotal here, as it should remain impartial to any interest in driving profits,” said Gaurav Chopra, Founder & CEO of IndiaLends.