Banks look to form their own self-regulatory body for fintechs
New Delhi, July 15, 2024
Synopsis
Banks plan to form a Section 8 entity under the Companies Act to secure an SRO license for the fintech sector. Talks have included the Payment Council of India. RBI's final guidelines require banks' involvement due to interconnected financial services. Neo banks and metaverse banking necessitate updates on fintech. The Indian Banks' Association (IBA) leads this initiative. Discussions with the Payment Corporation of India, covering over 90% of the industry, are ongoing. Lenders already collaborate with fintechs on online lending, AI credit assessment, and digital payment solutions.
Banks are likely to soon set up a Section 8 entity under the Companies Act to apply for a self-regulatory organisation (SRO) license for the fintech sector under Reserve Bank's framework, people familiar with the deliberations said. Lenders have also held discussions with other organisations, including the Payment Council of India, to be part of this new firm, said people aware of the developments.
In May, the RBI released the final guidelines for setting up an SRO for the fintech sector. "It is felt that banks should have a stake in matters related to the fintech sector, given that there are so many interconnected issues. With Neo banks and metaverse banking on the rise, it's necessary that banks are clued into the latest developments and issues in the fintech sector," said a senior bank executive, requesting anonymity. The proposed firm under Section 8 of the Companies Act will be set up by the Indian Banks' Association, or IBA, he added.
Another bank executive said that lenders are already collaborating with fintechs for online lending platforms, AI-based credit assessment tools, and digital payment solutions, among other services. "In this context, it's pertinent that we are a part of that ecosystem that RBI is trying to build up. We are assessing if we should set up our own SRO or participate with some existing FinTech organisation," he said, adding that some initial discussions have been held with Payment Corporation of India. Set up in 2013, PCI works with its more than 140 members, encompassing over 90% of the industry, to promote payments industry growth. "We are in discussion with some other entities too and will be finalising our strategy soon," the above quoted executive said.
The RBI has allowed having multiple SROs in the fintech sector, while mandating that every fintech should be part of at least one such body.
While fintechs can choose SROs, if an SRO fails to get sufficient members, the regulator might derecognise it.
"Through comprehensive membership agreements that encompass a broad spectrum of industry players, the SRO-FT should gain the legitimacy and credibility to not only frame baseline standards and rules of conduct codes, but also effectively monitor and enforce them," the regulator noted in the final guidelines.
[The Economic Times]
