SROs must promote a culture of compliance among members, says RBI
Mumbai, Mar 21, 2024
The membership criteria of the SRO would be as prescribed by RBI at the time of inviting the application for each category/class of REs
The Reserve Bank of India (RBI) has asked the self-regulatory organisations (SROs) to promote a culture of compliance among regulated entities while giving special attention to smaller entities in the sector, in the final omnibus framework for recognising such organisations for regulated entities.
“Encourage a culture of research and development within the sector to encourage innovation while ensuring the highest standards of compliance and self-governance,” the framework said while listing the objectives of an SRO.
The RBI said it is expected that the SRO should function above self-interests and address larger concerns of the industry and the 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.”
It is mandated for SROs to frame a code of conduct that has to be followed by its members and monitor adherence to the code as well as compliance with the regulatory instructions by its members.
The SRO needs to develop a uniform, reasonable, and non-discriminatory membership fee structure.
The SROs have been asked to establish a grievance redress dispute resolution and arbitration framework for its members and offer counselling on restrictive, unhealthy, and other practices that may be detrimental to the growth of the sector.
“The dispute resolution process should consistently use efficient, fair, and transparent policies and procedures that are in line with the regulatory and statutory requirements,” the framework said.
Among the responsibilities of the SRO towards the regulator, the RBI said such an entity is expected to be an ally of RBI in ensuring better compliance with the regulatory guidelines, development of the sector, protection of stakeholder interests, fostering innovation, and detection of early warning signals.
The norms said the SRO should promptly inform about any violation by its members to the regulator.
An SRO should submit an annual report to the RBI within three months of the completion of the accounting year.
“The RBI may, if it deems necessary, inspect the books of the SRO or arrange to have the books inspected by an audit firm. The SRO shall be obligated to provide the required information to the inspection team for the conduct of the inspection. The expenses of such inspection shall be borne by the SRO,” the norms said.
Commenting on the eligibility criteria, the norms mandated that the SRO should be a not-for-profit company registered under Section 8 of the Companies Act, 2013. The shareholding of the SRO should be sufficiently diversified, and no entity shall hold 10 per cent or more of its paid-up share capital, either singly or acting in concert, it said.
“The applicant must be fit and proper for the grant of recognition as an SRO, in all other respects,” the norms said.
On governance issues, the RBI said the SRO should be professionally managed and have a suitable provision in their Articles of Association/bylaws to ensure this. It is mandated that at least one-third of members of the board of directors including the chairperson should be independent and without any active association with the category/class of regulated entities for which the SRO is established.
“The board shall, among others, frame a policy on rotation of directors for important positions on the board. Any change in the directorship or any adverse information about any director shall be immediately reported to the Reserve Bank,” it said. The board has been asked to ensure that the SRO has adequately skilled human resources and robust technical capability to monitor the sector.
The norms also said the regulator will have the power to revoke the recognition granted to the SRO if its functioning is detrimental to the public interest or any other stakeholder, or if the SRO is found to be conducting activities that are not in conformity with the objectives of the SRO. The membership of the SRO should be voluntary.
The membership criteria of the SRO would be as prescribed by RBI at the time of inviting the application for each category/class of regulated entities.
“The minimum membership that may be prescribed by the RBI shall be attained ideally at the time of making an application or within such a timeline as prescribed by the RBI but not exceeding two years from the date of grant of recognition. Failure to achieve specified membership within the timeline could result in the revocation of the recognition granted,” it added.
New mandates
- RBI said that SROs were expected to function above the self-interests and address larger concerns of the industry
- SROs should develop a uniform, reasonable and non-discriminatory membership fee structure
- SROs have been asked to establish a grievance redress and dispute resolution, arbitration framework
[The Business Standard]
