Context:

  • In the recent keynote address on March 5, 2023 at the 17th Foreign Exchange Dealers’ Association of India (FEDAI) Annual Conference Deputy Governor, RBI, spoke about Self­Regulatory Organisations (SROs).
  • Following the address, the Statement on Developmental and Regulatory Policies released along with the Monetary Policy Statement on October 6.
  • The statement announced that RBI would release an omnibus framework for recognising SROs for its Regulated Entities (REs) for stakeholder comments.
  • The Draft Framework (DF) expects the RBI­recognised SRO to be act as bridge between RBI and REs on one hand and an arbiter for its members to resolve their grievances and disputes on the other.
  • The DF’s goal is to make the financial sector more professional, compliant, innovative and also ethical.

DEFINITION OF SROS:

  • Self­regulation, which is above the self­interest, is in line with the ‘public interest’ theory of regulation.
  • SROs generally refers to voluntary associations of firms belonging to the same industry class which enunciate and implement rules and standards relating to the member­firms’
  • SROs are empowered by the government or the regulator/s to enforce self­regulation on its members and bodies.
  • The SRO members create a more flexible regulatory framework than the government’s or regulators’ frameworks and this feature benefits the industry as well as the economy at large.
  • Self­regulation can actually eliminate conflicts of interest, jurisdictional conflicts, and legal limitations.
  • Self­regulation in many countries predates formal regulations.
  • Microfinance Institutions Network (MFIN) is the first association of the Non­Banking Finance Companies Microfinance Institutions to get RBI recognition as an SRO in 2014.
  • It is important to note that Securities and Exchange Board of India set up Registrars Association of India as an SRO for registrars to an issue and share transfer agents and it asked Association of Mutual Funds in India (AMFI) to act like an SRO in May 2023.