Redefining FinTech Compliances through SelfRegulatory Organizations in India

Abstract

In today's rapidly evolving markets, characterized by technological advancements and information proliferation, effective regulation is essential. While ultimate regulatory responsibility lies with official regulatory bodies, the development of Self-Regulatory Organizations (SROs) is seen as a strategic move to enhance market integrity and effectiveness. SROs have varied formats across different global markets, often predating statutory regulation in various sectors. SROs are voluntary bodies driven by their members, responsible for establishing self-regulatory organisations and enforcing rules to ensure fair, ethical, and efficient practices within their respective industries. Unlike mere industry associations, SROs actively oversee market participants, licensing firms engaged in market activities, and enforcing regulatory standards under the supervision of main regulatory bodies. They serve as the first level of regulation, fostering a disciplinary culture among industry players and assisting regulators in achieving their objectives. The main aim of implementing an SRO model for regulation is to minimize government intervention in industry operations while simultaneously promoting the natural, equitable, and ethical development of entities within the ecosystem. Historically, the execution of self-regulation by SROs has not always been optimal. Nonetheless, SROs encompass a range of entities such as exchanges, associations, and depositories, playing crucial roles in maintaining market integrity. Prominent examples include the National Association of Securities Dealers (NASD) and National Stock Exchanges like the NYSE in the United States, Sa-dhan2 and MFIN3 for microfinance in India as well as the Investment Dealers Association (IDA)4 in Canada. Beyond financial markets, effective SROs can also be found in other industries, such as the American Arbitration Association (AAA)4 and American Medical Association (AMA)5 , where they establish performance standards, safeguard member interests, and work to fortify their respective sectors. The main objective of the implementation of the SRO model for regulation is to create a robust framework wherein the state intervention is minimal in industrial operations while promoting equitable, organic and ethical growth of entities within the ecosystem. The initial initiation of the SRO model in regulation began when RBI had included Payment System Operators6 under its purview. However, this approach faced criticism due to doubts originating about the SRO’s independence and its being a toothless body.