The Reserve Bank on Thursday came up with the final framework for establishing self-regulatory organisations (SROs) in the fintech industry.
The SRO-FT (fintech) will operate "objectively, with credibility and responsibility" under the oversight of the central bank, and will work towards "healthy and sustainable development" of the sector, the rules said.
The framework defines fintech as entities providing technological solutions for delivery of financial products and services to businesses and consumers or encompassing regulatory and supervisory compliance in partnership with traditional financial institutions or otherwise.
Conceding that the fintech sector innovates, the framework made clear the RBI's concerns with the sector, stating that concerns from the sector emanate from "customer protection, data privacy, cyber security, grievance handling, internal governance, financial system integrity".
"The approach to regulation of this dynamic sector needs, therefore, to be balanced, nuanced and reasonably anticipatory. In such a context, the framework for FinTechs also needs to be imaginative, adaptive, flexible, and proportionate to the perceived risks," it said.
Self-regulation within the sector could be one way of achieving a "delicate balance" between maximizing the creative potential and minimizing the risks that the sector poses, the RBI said.
The framework said self-regulation could enable the fintech sector to align growth with self-imposed standards, be answerable to peer demands, and be guided by exemplary conduct norms, and listed out the specifics on characteristics and eligibility for such SROs.
An SRO should be truly representative of the sector and exclude banks. It must focus on being development-oriented and should be independent from any influence, the RBI said.
All the members of the SRO should perceive the platform as a legitimate arbiter of disputes, and the body should be capable of aligning members with regulatory priorities. No single entity should own more than 10 per cent in the SRO, and the entity desirous of applying for an SRO should have a minimum networth of Rs 2 crore within one year of recognition.
The SRO should be registered in India, but can have foreign fintechs as its members, the norms said, adding that membership of the body should be voluntarily.
The RBI will take a call on the fit and proper status of the SRO-FT, its board and key management personnel.
Its functions and responsibilities include standard setting, oversight and enforcement and developmental activities for the sector.
The central bank has also listed down the responsibilities to be discharged by the SRO-FT towards the RBI, and underlined that they should also have sound governance practices.
If deemed necessary, RBI can nominate or depute observers on the SRO-FT's board, the framework said.
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