The diversity among business models in the fintech industry makes it necessary to have a multiple self-regulatory organisation(SRO) structures, say experts. “We expect more innovative business models and players to join the fintech segment, going ahead. Consequently, there will be room for more than one SRO due to the different business models,” Digital Lenders Association of India (DLAI) Chief Executive Officer Jatinder Handoo said.
Earlier in January, RBI issued a draft framework that lays down broad functions, governance standards, and eligibility criteria for setting up an SRO for fintech companies. But, the choice to have a single SRO or a multiple SRO has been left open to the industry.
The central bank’s draft guidelines have led to discussion and deliberation on the pros and cons of a multiple SRO structure. A couple of representative bodies have already landed at the RBI’s doorstep for an SRO license.
Currently, depending on the nature of activities, the fintech industry has four associations. These are Fintech Convergence Council, Payments Council of India(FCC), Fintech Association for Consumer Empowerment(FACE), and Digital Lenders Association of India(DLAI).
Broadly, FACE comprises consumer-facing lenders, DLAI comprises micro-small and medium-sized enterprise lenders, FCC represents lenders and software-as-a-service companies, and Payments Council of India represents payment aggregators, and prepaid instrument issuers among others.
“For financial services, there are four critical areas. Payments, lending, insurance and investments. All these verticals do not come under the purview of the RBI. The idea is to ensure that for each of these services, we should have a separate SRO,” a senior official at Fintech Convergence Council said, adding that for each of these functions, the preference would be to have a single SRO.
Typically, these industry associations operate on a membership-based model. These entities seek to mobilise industry opinion around regulatory and policy issues. Lending oriented representative bodies like FACE also work towards promoting responsible lending and responsible borrowing among its members.
In its draft norms, RBI noted given the diverse nature of fintechs, restricting the industry to one SRO could dilute some industry concerns. On the other hand, multiple SRO could undermine the representative character of self-regulation. Hence, a consensus on these issues would be crucial to the effectiveness of self-regulation.
As a licensed SRO, an entity must guide the conduct of its members, ensure that they adhere to industry standards, comply with relevant laws and regulations, and maintain ethical standards. The SRO must also frame a code of conduct for its members, on a basis of the nature of various set of activities undertaken by them.
While granting a license, experts contend that RBI must be considerate of the diversity of business models, the ability of an applicant to from consensus on tricky matters, and enforce consensus-based decision making among members. Here, the capability and capacity of a potential applicant, and the diversity of membership is also essential.
“It is amply clear is that we need an able SRO. An SRO that is inclusive, representative and focused on the sector it caters to, professionally managed and governed and works for,” says FACE Chief Executive Officer Sugandh Saxena.