This article presents our response to the RBI’s Draft framework for recognising Self-Regulatory Organisations (SRO) for FinTech Sector, published for public consultation on the 15th of January.
Our response covers two themes:
1. Leading from a customer protection perspective, our comments emphasise the need for the prospective SRO to have duties towards the customers, at par with responsibilities towards the regulator. We submit that such a set of responsibilities will offer deeper safeguards to the customers and distinguish the SRO from other industry bodies.
Further, having an explicit responsibility towards the customers will ensure that the day-to-day functions of the SRO such as standard setting, surveillance etc. internalise the concerns of the customers and incorporate meaningful tools within these functions to achieve customer protection.
We envision four key aspects that may be subsumed under the SRO’s responsibilities to the customers. These are:
- Reducing information asymmetry between members and customers by enabling clear customer disclosures, assisting customers in comparing financial products and enhancing transparency and trust between the two parties.
- Encouraging product suitability for customers that prevents adverse financial outcomes for customers by creating guidelines and standards for suitability assessments and identification of over-indebtedness (when the members engage in lending activities).
- Focussing on improved and effective data protection practices at an industry level by encouraging research and formulating guidelines that safeguard customers against harm from the activities of member entities. Upholding data protection principles as set out in Indian legislation, including but not limited to practising effective consent during financial transactions.
- Ensuring that grievance redress mechanisms for members’ customers are independent, customer-centric, accessible and efficient.
- Aligning all other functions of the SRO with the responsibility of customer protection, to ensure that all functions of the SRO are sensitive to and organically internalise the concerns of the customer. This would help make customer protection a second nature of the SRO.
2. Providing greater clarity on the treatment of those entities that may already fall under the jurisdiction of other SROs. Several regulated entities such as NBFCs, banks etc. participate in the FinTech supply chain. Some of these entities may have already subscribed to other SROs (say NBFCs). Clarity on how these regulated entities will be treated, if they would be required to subscribe to both SROs and to what extent will help bring greater clarity to the system as a whole.
The complete response is available here.
