Fintech companies are onboard with the Reserve Bank of India’s (RBI) call for creation of a self-regulatory organisation (SRO)for the sector. However, the success of an SRO model for fintechs will depend on multiple factors, including prevention of conflicts of interest, industry members say.
On Friday, RBI deputy governor MK Jain had said fintechs must try to organise themselves under an SRO model and the role of such an entity would include setting the standards for conduct and acting as a bridge between the sector and regulators.
Upasana Taku, co-founder and COO at MobiKwik, said the success of such a model would depend on defining the scope of the SRO, determining the membership criteria, assuring that there is adequate oversight to prevent conflicts of interest and ensuring that the SRO is truly independent and represents the interests of its members, while also being accountable to the regulators.
“Such a regulatory organisation will help draft standard protocols which can be used by diverse startups and tech giants alike to collaboratively provide interconnected microservices and help in containing losses arising from cyberattacks, frauds, and other technical glitches associated with operations. Further, SRO will ensure fintechs lend in a prudent manner and avoid misleading consumers about their products and potential benefits,” said Krishnakant Mane, firector & CTO at Bookmatic. “That said, the move to establish any such SRO should be held only after conducting a wider consultation with stakeholders, investors particularly included. The provisions of the model should be balanced and must not end up becoming a whipping stick for regulators…,” he added.
The RBI
While fintechs support the creation of a SRO, they feel achieving a consensus on the framework of the regulation is quite a difficult task.
As Sumit Chhazed, CEO and co-founder of OTO said, fintechs cover a range of markets such as B2C, B2B and P2P and there are different types of fintech startups based on use cases in India, including for payments, banking, wealth management, lending, personal finance and embedded financial services.
“Therefore, implementation of a common set of standards for the fintech ecosystem in general would make the effectiveness of the standards go futile, as the nature of each startup is distinct… however it’s better to go phase by phase, prioritising the markets that are more prone to threats or risks and regulating them based on the fundamental objectives of consumer protection, financial stability, integrity, orderly development and competition,” he said.
Sugandh Saxena, CEO of fintech lobby group FACE, said there are good examples of self-regulation in financial markets and the fintech industry will apply similar approaches. SROs maintain a close engagement with regulators, allowing them to steer the industry to meet regulatory expectation, she said. “In fintech lending, where market participants include banks, non-banks and multiple LSPs/TSPs in various partnerships, SRO can be an important mechanism to stitch everyone with common threads. While SROs draw their powers and resources from members or, say, market players, a regulatory framework and recognition by the regulator are important to give legitimacy, trust and credibility to the SRO’s work in the eyes of market participants and the wider ecosystem,” Saxena said.