Self-Regulatory Organisations (SROs) for Regulated Entities

March 22, 2024

Self-Regulatory Organisations (SROs) are industry-led bodies that play a crucial role in promoting and maintaining standards within a specific sector. In India, the Reserve Bank of India (RBI) has released an omnibus framework for recognising SROs for its regulated entities. This framework outlines the objectives, responsibilities, eligibility criteria, and governance standards for SROs in the financial sector.

Objectives of SROs

The primary objectives of SROs, as per the RBI framework, include:

Promoting a culture of compliance among members by implementing a comprehensive code of conduct
Acting as a collective voice for members in engagements with the RBI, government authorities, and other regulatory bodies
Collecting and sharing relevant sectoral information with the RBI to aid in policymaking
Encouraging research and development within the sector to foster innovation

Responsibilities of SROs

SROs have several key responsibilities towards their members and the regulator. These include:

Framing and enforcing a code of conduct for members
Monitoring adherence to the code and compliance with regulatory instructions
Developing a uniform, reasonable, and non-discriminatory membership fee structure
Establishing a grievance redress, dispute resolution, and arbitration framework for members
Offering counselling on restrictive, unhealthy, and detrimental practices
Promptly informing the regulator about any violations by members
Submitting an annual report to the RBI within three months of the completion of the accounting year

Eligibility Criteria for SROs

To qualify as an SRO, an entity must meet the following criteria:

Be a not-for-profit company registered under Section 8 of the Companies Act, 2013
Have sufficiently diversified shareholding, with no entity holding 10% or more of its paid-up share capital
Represent the sector and be fit and proper for the grant of recognition as an SRO
Possess or have the ability to create infrastructure to discharge SRO responsibilities on a continuing basis

Governance Standards for SROs

The RBI framework emphasizes the importance of strong governance mechanisms for SROs. Key governance standards include:

Focus on an independent board, transparency, and adherence to well-defined processes
Putting in place well-defined and transparent processes for overseeing members’ activities
Establishing clear standards of conduct and consequences for violations (excluding monetary penalties)
Developing standards for improving compliance culture and adherence to RBI rules and regulations
Implementing suitable surveillance methods for effective sector monitoring
Devising standardised procedures for handling disputes among members transparently

Membership Criteria

Membership in SROs is voluntary for all regulated entities. The RBI prescribes the membership criteria for each category/class of regulated entities at the time of inviting applications. The SRO should have a good mix of members at all levels to represent the sector holistically. The minimum membership prescribed by the RBI should be attained ideally at the time of application or within a timeline not exceeding two years from the date of recognition.

Relationship with the Regulator

SROs are expected to act as allies of the RBI in ensuring better compliance with regulatory guidelines, sector development, stakeholder protection, and early warning signal detection. They should keep the RBI informed of sector developments, carry out assigned work, and submit annual reports. The RBI reserves the right to order an audit of the SRO’s books and inspect them if deemed necessary.

Sector-Specific Guidelines

While the omnibus framework provides broad parameters for SROs, sector-specific guidelines, such as the number of SROs and membership details, will be issued separately by the respective departments of the RBI wherever a sectoral SRO is intended to be set up.

Existing SROs

Existing SROs already recognised by the RBI will continue to be governed by the terms and conditions under which they were recognised, unless the new framework is specifically extended to such SROs.

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