Framework for Recognition of Self-Regulatory Organisations in Financial Markets 

Syllabus: GS 3/ Economy 

In News 

• The Reserve Bank of India issued a framework for recognition of self-regulatory organisations in the financial markets space to help strengthen compliance culture and provide a consultative platform for policy making.

Key Regulations Mentioned in the RBI’s Framework:

 The RBI framework provides guidelines for recognizing SROs to oversee financial market segments like fintech firms and non-banking financial corporations (NBFCs).

• Application Process: Applications can be submitted via email or to the RBI’s Financial Markets Regulation Department in Mumbai
• Eligibility Criteria: Not-for-Profit: Must be a not-for-profit entity registered under Section 8 of the Companies Act, 2013, with a minimum net worth of ₹10 crore and adequate infrastructure.
• Voluntary Membership: Membership should be voluntary.
• Representation: Must represent a diverse mix of sector entities. If current representation is insufficient, a two-year roadmap must be provided to achieve adequate representation.
• Directors: Must have competent, fair, and reputable directors without past convictions for offences, including economic crimes.
• The RBI may impose additional conditions to ensure the SRO’s functioning is in the public interest.

About Self-Regulatory Organisations

• Self-Regulatory Organisations are entities that are created by industries themselves to regulate and oversee the conduct of their members. Unlike government regulatory bodies, which are established by legislative or executive actions,
• SROs are formed by industry stakeholders and often operate under a framework of rules and guidelines developed by the industry.

Primary Objectives:

• SROs develop and enforce standards and practices that members must adhere to, ensuring consistency and quality within the industry.
• They help in setting ethical guidelines and codes of conduct to prevent malpractices and unethical behavior among members.
• SROs often provide mechanisms for resolving disputes between members or between members and their clients, thus promoting fairness and transparency.
• They offer training and resources to help members stay informed about industry developments, regulatory changes, and best practices.

Challenges 

• While SROs contribute significantly to industry self-regulation, they face several challenges:
  • Maintaining consistent compliance among members can be challenging, especially in rapidly evolving industries.
  • SROs must balance the interests of different stakeholders, including large corporations and small businesses, which can sometimes lead to conflicts.
  • The effectiveness of SROs can be impacted by the extent of regulatory oversight they are subject to. Striking the right balance between self-regulation and external regulation is crucial.

Conclusion and Way Forward 

• SROs in India are likely to focus on enhancing their regulatory frameworks, adopting new technologies for better compliance, and improving transparency and accountability. By addressing these challenges, SROs can continue to play a vital role in fostering ethical practices and maintaining high standards across various industries. 
• As industries evolve, SROs will need to adapt and innovate to effectively manage the challenges of modern self-regulation.

Source : TH