Skip to main content

Draft Omnibus Framework for recognising Self-Regulatory Organisations for Regulated Entities

Reserve Bank of India (RBI) has released draft omnibus framework for recognising Self-Regulatory Organisations for its regulated entities.

What is the need of Self-Regulatory Organisations for Regulated Entities?

With the growth of Regulated Entities (REs) in terms of number as well as scale of operations, increase in adoption of innovative technologies and enhanced customer outreach, a need is felt to develop better industry standards for self-regulation.

Self-Regulatory Organisations (SROs) enhance the effectiveness of regulations by drawing upon the technical expertise of practitioners and also aid in framing / fine-tuning regulatory policies by providing inputs on technical & practical aspects, nuances and trade-offs involved. 

To whom shall the omnibus SRO framework be applicable?

The omnibus SRO framework will be common for all SROs, irrespective of the sector.

Existing SROs already recognized by Reserve Bank of India (RBI) shall continue to be governed by the terms and conditions under which they were recognized, unless the omnibus framework is specifically extended to such SROs.

What shall be the characteristics of SROs for REs?

An SRO is expected to operate under the oversight of the regulator and is expected to have the following characteristics –

  • The SRO should have sufficient authority which is derived from membership agreements to set ethical, professional and governance standards and enforce these standards on the members. It should have strong governance mechanisms, including focus on independent board, transparency, and adherence to well-defined processes.
  • The SRO should have objective, well-defined and consultative processes to make rules relating to conduct of its members and shall be able to enforce these rules. SROs should also put in place well-defined and transparent processes and procedures for overseeing activities of their members. It should establish clear standards of conduct and specify consequences for violation of agreed rules / codes.
  • The SRO should develop standards for improving compliance culture and adherence by its members to the rules and regulations framed by RBI.
  • The SRO should devise and implement standardised procedures for handling disputes among members, including processes to resolve these disputes through a transparent and consistent dispute resolution / arbitration mechanism.
  • The SRO should have suitable surveillance methods for effective monitoring of the sector.

What shall be the objectives of SROs?

  • SRO shall promote a culture of compliance among its members. SRO shall extend guidance and support, particularly to smaller entities within the sector, and share best practices aligned with statutory and regulatory policies. For this purpose, the SRO should frame and implement a comprehensive code of conduct for its members.
  • The SRO shall act as the collective voice of its members in engagements with RBI, government authorities or other regulatory and statutory bodies. It is expected that the SRO functions above the self-interests and addresses larger concerns of the industry and financial system as a whole. While acting as the industry representative, the SRO is expected to ensure equitable and transparent treatment for all its members.
  • SROs shall collect and share relevant sectoral information to RBI to aid in policymaking. 
  • SRO shall encourage a culture of research and development within the sector to encourage innovation while ensuring highest standards of compliance and self-governance.

What shall be the eligibility criteria for SROs?

  • The applicant shall be set up as a not-for-profit company registered under Section 8 of the Companies Act, 2013. 
  • The applicant must have adequate net-worth and should possess or have the ability to create infrastructure to enable it to discharge responsibilities of an SRO on a continuing basis.
  • The applicant must represent the sector and have the specified membership or should have submitted roadmap for attaining specified membership within a reasonable timeline.
  • The applicant and its directors must have the professional competence, be financially sound and have general reputation of fairness and integrity to be established to the satisfaction of RBI. 
  • The applicant must be fit and proper for the grant of recognition as an SRO, in all other respects. 

What shall be the criteria for membership of SROs?

  • SRO operates as a true representative of the sector and its members and shall have a good mix of members at all levels to represent the sector holistically. 
  • The minimum membership that may be prescribed by RBI shall be attained ideally at the time of making an application or within such a timeline as prescribed by RBI but not exceeding 2 years, from the date of grant of recognition. Failure to achieve specified membership within the timeline could result in revocation of the recognition granted.
  • The membership of SRO shall be voluntary for the members.

What shall be the criteria for the Board of SROs?

At least 1/3rd of members in the Board of Directors including the chairperson shall be independent and without any active association with the category / class of REs for which the SRO is established. 

What shall be the responsibilities of SROs towards RBI?

  • The SRO shall keep RBI regularly informed of the developments in the sector. It shall also promptly inform RBI about any violation by its member of the provision of the Acts or the rules / guidelines / regulations / directions issued by RBI, which comes to its notice.
  • The SRO shall carry out any work assigned to it by RBI and examine the proposal or suggestion referred to it. It shall provide data / information, sought by RBI periodically or as advised.
  • The SRO should submit its Annual Report to RBI, within 3 months of completion of the accounting year. The SRO shall also submit the periodic / adhoc returns as may be prescribed by RBI.
  • The SRO may be invited for periodic interactions with RBI and is expected to look at the larger picture of the industry / segment in offering its views / inputs / suggestions.
  • The SRO shall discharge such other functions and also abide by such other directions as specified by RBI, from time to time.
  • RBI may inspect the books of the SRO or arrange to have the books inspected by an audit firm. The expenses of such inspection shall be borne by the SRO.

How shall the application of SROs be processed?

  • An entity aspiring to function as an SRO shall be required to make an application to RBI for recognition.
  • Where the applicant is deemed suitable, RBI would proceed to issue a “Letter of Recognition” as the SRO.


References

Reserve Bank of India. (2023, December 21). 'Draft Framework for comments Omnibus Framework for recognising Self-Regulatory Organisations (SROs) for Regulated Entities (REs) of the Reserve Bank of India'. Retrieved from https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=1247

Reserve Bank of India. (2023, December 21). 'RBI invites comments on the ‘Draft Omnibus Framework for recognising Self-Regulatory Organisations for its Regulated Entities'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=56969


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Highlights of RBI Annual Report 2023-24 – Chapter 7 to 12

Reserve Bank of India (RBI) has published its annual report for the financial year 2023-24. In a series of articles, we will go through the highlights of the report. This is the fifth and last article in the series.  Chapter 7 – Public Debt Management Ways And Means Advances (WMA) limit for the Government of India (GoI) for H1:2023-24 (April to September 2023) was fixed at ₹1,50,000 crore and for H2:2023-24 (October 2023 to March 2024) was fixed at ₹50,000 crore. RBI issued an ultra-long security of 50-year tenor aggregating ₹30,000 crore to cater to the growing needs of long-term institutional players. Issuance of Sovereign Green Bonds (SGrBs) for an aggregate amount of ₹20,000 crore included maiden issuance of 30-year (₹10,000 crore) SGrB in addition to 5-year (₹5,000 crore) and 10-year (₹5,000 crore) SGrBs. A new 3-year benchmark security was introduced as part of government market borrowing programme during H1:2023-24.  The basket of products offered through the ‘Retail ...
Post a Comment
Read more

Lending against Gold and Silver collateral

Reserve Bank of India (RBI) has issued directions on lending against the collateral of gold and silver. To whom are the directions applicable? The directions are applicable to the following regulated entities (REs) – Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks, but excluding Payments Banks). Primary (Urban) Co-operative Banks (UCBs) & Rural Co-operative Banks (RCBs), i.e., State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs). Non-Banking Financial Companies (NBFCs), including Housing Finance Companies (HFCs). Which loans are covered under the directions? The directions shall apply to all loans offered by an RE for the purpose of consumption or income generation (including farm credit) where eligible gold or silver collateral is accepted as a collateral security. What is eligible collateral? Eligible collateral means the collateral of jewellery, ornaments or coins made of gold or silver. A lender shall not grant any ad...
Post a Comment
Read more

Pre-payment Charges on Loans

Reserve Bank of India (RBI) has issued directions on pre-payment charges on loans. What issues were observed by RBI during supervisory reviews? Divergent practices were observed amongst Regulated Entities (REs) with regard to levy of pre-payment charges in case of loans sanctioned to Micro and Small Enterprises (MSEs) which lead to customer grievances and disputes.  Certain REs were found to include restrictive clauses in loan contracts / agreements to deter borrowers from switching over to another lender, either for availing lower rates of interest or better terms of service. To whom shall the directions be applicable? The directions shall apply to all commercial banks (excluding payments banks), co-operative banks, Non-Banking Financial Companies (NBFCs) and All India Financial Institutions (AIFIs). To which loans shall the direction be applicable? The directions shall be applicable to all floating rate loans and advances sanctioned or renewed on or after January 01, 2026. Which ...
Post a Comment
Read more

Due Diligence of AePS Touchpoint Operators

Reserve Bank of India (RBI) has issued directions on due diligence of Aadhaar Enabled Payment System (AePS) touchpoint operators. What is Aadhaar Enabled Payment System (AePS)? Aadhaar Enabled Payment System (AePS) is a payment system in which transactions are enabled through Aadhaar number and biometrics / OTP authentication providing financial services such as cash withdrawal, cash deposit, fund transfer, and non-financial services such as mini statement and balance enquiry, etc. AePS is a payment system operated by National Payment Corporation of India (NPCI) that facilitates interoperable transactions using Aadhaar enabled authentication.  What is AePS touchpoint? AePS touchpoint is the terminal deployed by acquirer banks to facilitate AePS transactions, which shall include both mobile and fixed points. Who is AePS Touchpoint Operator (ATO)? AePS Touchpoint Operator (ATO) is the individual onboarded by the acquiring bank who operates the AePS touchpoint. What is the rationale b...
Post a Comment
Read more

Priority Sector Lending (PSL) guidelines

Reserve Bank of India (RBI) has issued the revised guidelines on Priority Sector Lending (PSL) which has come into effect from April 01, 2025.  To whom does Priority Sector Lending (PSL) guidelines apply? Priority Sector Lending (PSL) guidelines apply to – Commercial Bank [including Regional Rural Bank (RRB), Small Finance Bank (SFB), Local Area Bank (LAB)] Primary (Urban) Co-operative Bank (UCB) other than Salary Earners’ Bank  What are the categories under PSL? The categories under priority sector are as follows – Agriculture Micro, Small and Medium Enterprises Export Credit Education Housing Social Infrastructure Renewable Energy Others What are the PSL targets for banks? The targets and sub-targets set under PSL, to be computed on the basis of the Adjusted Net Bank Credit (ANBC) / Credit Equivalent of Off-Balance Sheet Exposures (CEOBE) as applicable as on the corresponding date of the preceding year are as below – Categories Total Priority Sector A...
Post a Comment
Read more