Fintech industry to gain self-regulatory organization in 3-6 months
The fintech and digital lending companies are gearing up to create a self-regulatory organization (SRO) within the next 3-6 months, as per insiders involved in discussions with the Reserve Bank of India. An SRO is a non-governmental body that sets monitoring standards for industry members and acts as a go-between for the industry and the regulator. Currently, the Digital Lenders Association of India and the Fintech Association for Consumer Empowerment are in talks to establish an SRO for the sector.
RBI governor encourages fintechs to form SRO
RBI Governor Shaktikanta Das encouraged fintechs to form an SRO during his speech at the Global Fintech Fest (GFF) 2023 in Mumbai last month. He emphasized the importance of self-regulation due to concerns about data privacy, unethical business practices, high interest rates, and aggressive recovery tactics linked to illegal loan apps. After the October 2023 Monetary Policy Committee meeting, Das revealed that the RBI plans to issue a framework for SROs for regulated entities (REs).
Central bank's support for growing fintech industry
In recent months, the RBI has kept a close eye on the fintech landscape, implementing measures and guidelines to foster its growth. In June 2023, the central bank approved the first loss default guarantee (FLDG) system with a 5% cap. It also released digital guidelines in September 2022 to provide more clarity in the sector. Industry insiders believe that an SRO will offer more insight into business models, security, growth, and overall operations for the sector.
SRO expected to bring opportunities and clarity
Once established, the SRO will give industry members a clearer understanding of the code of conduct, business models, and overall infrastructure. This is expected to result in increased investment in the sector due to monitoring and regulatory oversight. Companies with risky models will have to reassess their operations or risk shutting down. Entities with non-viable models won't be covered under the SRO's umbrella.
