Reserve Bank of India Proposes Framework for Self-Regulatory Organizations

In a significant move, the Reserve Bank of India (RBI) released a draft framework on Thursday for self-regulatory organizations (SROs) governing banks, NBFCs (Non-Banking Financial Companies), and other entities regulated by them.

The proposal emphasizes the utilization of SROs to enhance the effectiveness of regulations by leveraging the technical expertise of healthcare professionals. These organizations are envisioned to assist in formulating and refining regulatory policies by providing input on technical and practical aspects, intricacies, and market dynamics.

According to the central bank, SROs could also contribute to fostering innovation, transparency, impartial competition, and consumer protection.

The document suggests that the SRO framework will complement existing regulatory structures for better compliance. It aims to define comprehensive objectives, functions, eligibility criteria, and governance standards applicable uniformly across all SROs, including those for RBI-regulated entities.

Furthermore, the proposal highlights the necessity for purposeful, well-defined, and consultative processes to formulate rules related to the conduct of their members, ensuring their effective enforcement.

Additionally, it advocates for transparent and well-defined monitoring processes and procedures by SROs to oversee their members' activities, establishing clear standards for behavior and specifying consequences for non-compliance with agreed-upon rules/regulations.

The draft underscores the need for SROs to improve compliance culture and develop standard practices for adhering to rules and regulations set by the RBI through a consensus-based approach.

It also outlines eligibility criteria, governance, and application processes for SRO recognition, mentioning that SRO membership for regulated entities will be voluntary.

The RBI invites feedback and comments on the proposed framework before its finalization, aiming to establish a robust system through collaborative efforts between regulators and self-regulatory bodies.