By Jitendra Soni,
The Reserve Bank of India has approved the Fintech Association for Consumer Empowerment as the fintech industry’s first self-regulatory organisation (SRO-FT). Jitendra Soni explains how this will help capitalise on its growth potential while addressing the specific risks it poses to the financial system.
l What is SRO-FT?
AN SRO-FT IS an industry-led entity that establishes and enforces regulatory standards, promotes ethical conduct, ensures market integrity, resolves disputes, and fosters transparency and accountability among its members. It operates under the oversight of the Reserve Bank of India (RBI). As per the framework, a fintech entity can join multiple SROs and are encouraged to participate in at least one. The SRO-FT should be a fair and transparent arbiter of disputes, fostering a stable fintech environment. The SRO-FT should guide members to align with regulatory priorities, facilitate communication with the RBI, and enforce compliance while supporting innovation and consumer protection. Additionally, it should collect and share data on member activities to aid research, trend analysis, and policymaking, enhancing sector development and resilience.
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l Benefits of self-regulation
FROM THE REGULATOR’S perspective, self-regulation can help achieve the delicate balance between maximising the creative potential of fintechs while minimising the idiosyncratic risks they pose to the financial system. From an industry participant’s perspective, self-regulation fosters a culture of self-discipline, high levels of internal governance and an environment conducive to an organised and orderly development of the sector. Overall, this approach enables the industry to adapt effectively to rapid technological advancements and evolving market dynamics.
l FACE as the first SRO-FT
FINTECH ASSOCIATION FOR Consumer Empowerment (FACE) is a self-regulatory industry body for fintech lenders in India. Founded in the year 2020 by the fintech lenders Cashe, LoanTap, Fibe, KreditBee and Paysense, it has nearly 50 members today, collectively accounting for 80% of India’s digital lending business volume.
On August 28, 2024, the RBI recognised FACE as India’s first SRO-FT. FACE promotes responsible lending and borrowing by setting industry standards and ensuring ethical practices among its members.
l How will the SRO-FT ensure that entities comply with the regulations?
AN SRO-FT IS tasked not only with framing various codes and standards for its members but also specifying the consequences for violations and enforcing them. These standards include code of conduct, industry benchmarks, standardised…
Read More: Explainer | Playing by the rules: Why self-regulation is best for fintechs
