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Contributed on August 25, 2020

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RBI releases Draft framework for recognition of a Self-Regulatory Organisation for Payment System Operators

Blog: NASSCOM Official Blog

Context

On 18 August 2020, the Reserve Bank of India (RBI) released Draft framework for recognition of a Self-Regulatory Organisation (SRO) for Payment System Operators (PSOs). The SRO shall cover operators in all segments of payment systems and will be expected to observe best practices on security, customer protection and competitiveness, said RBI in a statement.

The SRO shall serve as a two-way communication channel between the PSOs and the Reserve Bank. It will work towards establishing minimum benchmarks and standards in the payments space, it added.

The Central Bank has invited comments on the draft framework from all stakeholders by 15 September 2020. 

Major Highlights of the Draft Framework

• About SRO

1. An SRO is a non-governmental organisation that sets and enforces rules and standards relating to the conduct of entities in the industry (members) with the aim of protecting the customer and promoting ethics, equality, and professionalism. SROs typically collaborate with all stakeholders in framing rules and regulations.
2. It will be responsible for setting and enforcing rules for PSOs.
3. The self-regulatory processes of SRO will be administered through impartial mechanisms, such that members operate in a disciplined environment and accept penal actions by the SRO.
4. An SRO is expected to address concerns beyond the narrow self-interests of the industry, such as to protect workers, customers or other participants in the ecosystem.
5. Regulations, standards, and dispute resolution and enforcement by an SRO get legitimacy not just by mutual agreement of its members, but also by the efficiency with which self-regulation is perceived to be administered. Such regulations supplement to, but do not replace, applicable laws or regulations.

• Benefits of an SRO

1. Expertise – SROs are widely considered as experts in their fields and hence have in-depth knowledge of the markets they operate in. This is helpful to their members as they can be called in to participate in deliberations and learn more about the nuances of the industry.
2. Higher standard of conduct – Formation of SROs ensure member organisations follow a certain standard of conduct that helps promote ethical ways of doing business. This can lead to enhanced confidence in the ecosystem.
3. Watchdog – SROs can serve as a watchdog to guard against unprofessional practices within an industry or profession.
4. Communication – SROs facilitate organised communication between the regulator / stakeholders and the industry.
5. Customer experience – SROs can enhance customer experience in a payment product by way of standardising processes, especially those related to grievance redressal.

• Eligibility for recognition of an SRO by RBI

1. An SRO shall be set-up as a not-for-profit company under the Companies Act.
2. Any group or association of PSOs desirous of being recognised as an SRO by the Reserve Bank shall have as its members a majority of the industry segment it seeks to represent, in terms of number / volume / value.
3. The SRO shall be professionally managed with clear bye laws.
4. The memorandum / bye laws of the SRO shall specify criteria for admission of members and the functions it will discharge, as one of its main objects.
5. The memorandum / bye laws of the SRO shall also provide for the manner in which the governing body of the SRO would function.
6. Reserve Bank shall reserve the right to clear the appointment of important positions in the governing body of the SRO.
7. The SRO shall have adequate infrastructure to discharge its duties effectively, at the time of application.

• Grant of recognition as an SRO

1. Interested entities shall apply to the Reserve Bank seeking recognition as an SRO.
2. Reserve Bank reserves the right to require the entity to submit further information or clarification as deemed necessary by it before granting recognition as an SRO.
3. On finding suitable as an SRO, the Reserve Bank shall issue a letter of recognition.
4. Reserve Bank, if it considers appropriate, is not obligated to necessarily involve the recognised SRO in any discussions or decisions.
5. Reserve Bank may forward any proposals / suggestions to the recognised SRO for further engagement with its members.
6. Reserve Bank may withdraw its recognition to the SRO after giving due opportunity to the entity to further its views / comments.

 NASSCOM is inviting comments from our members and other stakeholders in order to make a timely submission to RBI on this matter. Please submit your inputs to komal@nasscom.in by 09 September 2020 (Wednesday).

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