Anant Kumar Anand - R760219008

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School Of Law
SEMINAR PAPER
SEMESTER & PROGRAM: X, BBA.LLB (Corporate Law)
TITLE OF THE SEMINAR PAPER
Fintech Regulation in India: Critical Analysis of Self-Regulatory

Organisation (SRO) for Fintech’s
Name of the student:

Anant Kumar Anand
SAP ID- 500076615
Roll No – R760219008
Under the Guidance of

Ms. Neeti Goyal
School of Law
University of Petroleum and
Energy Studies Dehradun
(2024)
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INDEX
S. No TITLE:
1. DECLARATION BY THE CANDIDATE 3
2. ACKNOWLEDGMENT 4
3. INTRODUCTION 5
4. AIMS AND OBJECTIVE 6
5. RESEARCH QUESTIONS 6
6. HYPOTHESIS 7
7. RESEARCH METHODOLOGY 7
8. SOURCE OF DATA COLLECTION 7
9. SCOPE OF THE STUDY 7
10. CHAPTER-1 8
HISTORICAL BACKGROUND
11. CHAPTER- II 9
FINTECH REGULATIONS IN INDIA
12. CHAPTER- III 11

CYBERSECURITY CHALLENGES IN FINTECH SECTOR
13. CHAPTER- IV 15
REGULATORS, TRIBUNALS, ENFORCEMENT & OTHER AGENCIES
14. CHAPTER- v 22
ANALYSIS
15. CHAPTER- VI 23
CLARIFICATION
16. CHAPTER- VII 24
CONCLUSION
17. REFERNCES 26
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DECLARATION BY THE CANDIDATE
I hereby declare that the work reported in the BBA. LL.B (Hons.) Project Report entitled “Fintech
Regulation in India: Critical Analysis of Self-Regulatory Organisation (SRO) for Fintech’s” is
an authentic record of my work carried out under the supervision of Ms. Neeti Goyal. I have not
submitted this work elsewhere for any other degree or diploma. I am fully responsible for the
contents of my Project Report.
(Signature of the Candidate)

ANANT KUMAR ANAND
University of Petroleum and Energy Studies, Dehradun
Date: 10.11.2024
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ACKNOWLEGDMENT
Writing a project is one of the most significant academic challenges I have ever faced. But penning
down an acknowledgement is far tougher. Because this is the junction where one acknowledges the
effort of those who helped during rigorous pain taking hours when project was shaping itself.
Though this project has been presented by me but there are myriad of people who remained in veil
but gave their unwavering support.
I would like to express my deepest gratitude to my professors and mentors, whose unwavering
guidance and insightful teachings have greatly shaped my understanding of the law. I would like to
express my sincere gratitude to Ms. Neeti Goyal, my faculty guide, for her invaluable guidance,
support, and encouragement throughout this research. Her insightful feedback and suggestions have
been instrumental in shaping this paper. I am deeply grateful for her constant motivation and for
sharing her vast knowledge, which greatly enhanced my understanding of the subject.
This research would not have been possible without her unwavering support, and I truly appreciate
the time and effort she dedicated to helping me achieve this outcome.
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INTRODUCTION
The term "FinTech" means "financial technology" and refers to any technology used to facilitate
financial transactions or services, provided by any entity. 3 However, in business and regulatory
contexts, FinTech specifically denotes technology used by financial service providers that disrupt
traditional methods of providing such services. Examples include companies like Paytm, PhonePe,
RazorPay, MobiKwik, and PayU. India boasts one of the world's largest fintech markets, with over
7,000 fintech startups. In the previous year, India's fintech adoption rate reached 87%, surpassing
the global average of 64%. The industry is projected to surpass a valuation of USD 1 trillion by
2030. Key sectors within India's fintech landscape include digital lending, digital payments, wealth
tech, and virtual digital assets (VDA).4
Over the past six years, the Indian fintech market has seen remarkable growth, with a noticeable
increase in consumer adoption of fintech solutions. India stands alongside China in fintech adoption
and leads globally in this regard. “Consumers in India, having had positive experiences with
technology firms offering non-financial services such as cab aggregation and hotel bookings, now
expect similar standards from fintech service providers. The total transaction value in India's fintech
market is projected to grow from about $65 billion in 2019 to $140 billion in 2023. India has
overtaken China as the leading fintech funding destination in Asia, with investments totaling around
$286 million across 29 deals, compared to China's $192.1 million across 29 deals in the first quarter
of 2019.” The Reserve Bank of India (RBI) plays a pivotal role in regulating fintech in India. The
RBI has adopted a balanced and forward-thinking approach to the various developments,
innovations, and disruptions in fintech. This approach includes the release of discussion papers,
press notes, frequently asked questions, draft regulations, and master directions. Such a discussion-
based approach provides valuable insight into the RBI's regulatory strategy.
As part of its regulatory efforts, the RBI has introduced a framework for Self-Regulatory
Organizations (SROs) to enhance industry standards and promote self-regulation among Regulated
Entities (REs). Regulators and policymakers must understand the latest fintech innovations and
promote regulations that enhance services without compromising security. As fintech grows,
potential threats like fraud, breaches, and cybersecurity risks increase. New payment systems and
models can compromise security and market integrity, while new products and services may be sold
to customers
3
https://rbidocs.rbi.org.in/rdocs/notification/PDFs/GUIDELINESDIGITALLENDINGD5C35A71D8124A0E92AEB94
0A7D25BB3.PDF
4
Adarsh Vijayakumaran, A Self Regulatory dharmsankat: An Outlook on The Future of Fintech Through RBI’s SRO
Policy,https://cbcl.nliu.ac.in/contemporary-issues/a-self-regulatory-dharmsankat-an-outlook-on-the-future-of-fintech-
through-rbis-sro-policy/
6
unaware of the risks. Technologies like blockchain, crowdfunding, and distributed ledger
technology (DLT) also present fraud and hacking risks. Consequently, the finance sector is one of
the most heavily regulated sectors globally due to these integrated risks.
AIMS AND OBJECTIVES

The research objective of the paper "Fintech Regulation in India: Critical Analysis of Self-
Regulatory Organization (SRO) for Fintechs" focuses on examining the effectiveness, challenges,
and implications of the Self-Regulatory Organization (SRO) framework within India's fintech
sector.
1. Evaluate SRO Framework: Examine the structure, functions, and scope of the SRO framework
for fintech companies in India.
2. Assess SRO's Regulation: Analyze how well the SRO framework regulates fintech activities,
ensuring compliance, consumer protection, and market integrity.
3. Identify Challenges: Discover and analyze the challenges and limitations faced by the SRO
framework in regulating fintech activities effectively, including issues related to governance,
enforcement, and jurisdictional conflicts
4. Examine Implications for the Fintech Industry: Study the impact of the SRO framework on the
growth, innovation, and competitiveness of the fintech sector in India, considering factors such as
funding access, market entry barriers, and business scalability.
RESEARCH QUESTION
1. Is a self-regulating Organization (SRO), the most viable option for regulating FinTech?
2. How SRO will work in the absence of real power and to what extent could an SRO go in
penalizing the violators?
3. Are the current laws and directives issued by the Reserve Bank of India (RBI) adequate
for effectively regulating the FinTech sector?
5. Explore Stakeholder Perspectives: Investigate the views and experiences of key stakeholders,
including fintech companies, regulatory authorities, consumers, and investors, regarding the role
and effectiveness of the SRO framework.
6. Propose Policy Recommendations: Based on the findings, suggest policy recommendations to
improve the effectiveness and efficiency of fintech regulation in India, including potential reforms
to the SRO framework and broader regulatory infrastructure.
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HYPOTHESIS
The establishment of a Self-Regulatory Organization (SRO) within the fintech sector shall serve to
regulate the activities therein, facilitating structured growth while concurrently mitigating
dependence upon and burden upon the Reserve Bank of India (RBI).
RESEARCH METHODOLOGY
This paper employs the doctrinal method as its primary research approach. Additionally,
observational research will be utilized to analyze and draw conclusions regarding the stated
problem. The researcher will reference various sources such as books, articles, journals, and online
resources. If needed, articles, journals, and reports will be examined to bolster or reaffirm the
perspectives presented. Observational research will be employed again to scrutinize and draw
conclusions on the identified problem.
SOURCES OF DATA COLLECTION

The researcher has used secondary sources for accomplishing of this project work.
SECONDARY SOURCE:
Books
Journals
Websites
Newspapers
SCOPE OF THE STUDY
This project work will be very helpful for the academic purpose of the researcher and also for the
future accomplishment of the researcher.
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CHAPTER-I
HISTORICAL BACKGROUND
Fintech regulation in India has evolved rapidly in response to the sector's fast-paced growth, aiming
to balance innovation with consumer protection, financial stability, and data security. The Reserve
Bank of India (RBI) has been at the forefront of fintech regulation, setting guidelines for digital
payments, digital lending, and data privacy.
In 2016, India's regulatory environment for fintech gained momentum with the demonetization of
high-value currency notes, which led to a surge in digital payments. The introduction of the Unified
Payments Interface (UPI) by the National Payments Corporation of India (NPCI) further boosted the
digital economy, making it easier for fintech companies to operate and innovate.
In recent years, specific regulations for digital lending, cryptocurrencies, and data privacy have been
introduced. The RBI issued guidelines for peer-to-peer (P2P) lending in 2017 and has since regulated
various fintech activities, including prepaid instruments and digital lending apps. In 2022, the RBI
set rules for non-bank Buy Now, Pay Later (BNPL) companies to address risks around consumer
protection and data security. The government also drafted the Digital Personal Data Protection Bill to
safeguard user data, impacting the fintech sector significantly.
Also the PPI Guidelines: To regulate digital wallets and prepaid instruments, the RBI issued
comprehensive PPI guidelines in 2017, setting requirements around KYC (Know Your Customer),
fund limits, and data privacy. This ensured that companies like Paytm, Mobikwik, and others
complied with regulatory standards to enhance consumer trust and security.
The regulatory landscape continues to evolve, with a focus on fostering a secure and competitive
environment for fintech growth while ensuring the protection of consumers and financial stability in
India.
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CHAPTER-II
FINTECH REGULATIONS IN INDIA
The regulatory framework for the fintech sector in India is currently fragmented, lacking a
comprehensive set of laws and regulations. However, policymakers have recognized the importance
of regulating the fintech industry to ensure its stability and growth.
1. 5Payment & Settlement Systems Act (2007): This act is the primary legislation governing
payment regulation in India. It requires any entity operating a payment system in India to obtain
prior authorization from the RBI. Payment systems covered include credit and debit card
operations, smart card operations, money transfers, and Prepaid Payment Instruments (PPIs).
2. 6Guidelines that regulate P2P Lending Platforms: The Peer-to-Peer Lending Platform
Directions of 2017 establish norms for lender exposure and borrowing limits on P2P lending
platforms in India.
3. 7NCPI Regulations for UPI Payments: The 8National Payments Corporation of India (NCPI)
issues guidelines regulating UPI payments in India. These guidelines require that money transfer
services through UPI platforms be generated by banks, which can engage technology providers to
operate mobile applications for UPI payments, subject to eligibility criteria and prudential norms set
by the NCPI.
4. 9NBFC Regulations: The 10

Reserve Bank of India Act of 1934 governs all Non-Banking
Financial Companies (NBFCs). Any organization providing fintech services in India must be
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registered with the RBI. Section 45-IA of the RBI Act stipulates that no NBFC can conduct
business without obtaining a certificate of registration from the RBI.
5
Jitendra Soni, RBI DRAFT FRAMEWORK FOR FINTECH SELF-REGULATORY, 01.02.2024,https://www.argus-
p.com/updates/updates/rbi-draft-framework-for-fintech-self-regulatory-organisation/
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Abhishek Ray, The Reserve Bank of India And The regulation of Fintech, Aparajita Srivastava/ Astha Srivastava/
Radhika Maheshwari, Fintech Laws and Regulations 2023, https://www.globallegalinsights.com/practice-areas/fintech-
laws-and-regulations/india.
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Aparajita Srivastava/ Astha Srivastava/ Radhika Maheshwari, Fintech Laws and Regulations
2023, https://www.globallegalinsights.com/practice-areas/fintech-laws-and-regulations/india
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5.12 Regulations for Payment Banks: Payment banks operate similarly to traditional banks but on
a smaller scale. They are registered as private limited companies and licensed under section 22 of
the 13Banking Regulations Act of 1949. Payment banks are subject to specific licensing conditions,
including restrictions on accepting demand deposits and conducting payment and settlement
activities.
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CHAPTER-III
CYBERSECURITY CHALLENGES IN FINTECH SECTOR
Cybersecurity poses a significant challenge for the FinTech sector, primarily due to the sensitive
financial data and transactions involved. Several key factors contribute to this ongoing concern:
1. Data Breaches: FinTech companies handle large volumes of sensitive financial information,
making them attractive targets for cybercriminals. Data breaches can lead to identity theft, fraud,
and the illegal sale of personal and payment data.
2. Sophisticated Cyber Threats: Cyber attackers are employing increasingly advanced techniques,
including phishing, malware, ransomware, and social engineering, to compromise FinTech systems.
These attacks can result in substantial financial losses for both companies and their customers.
3. Regulatory Compliance: FinTech firms must adhere to strict regulatory requirements concerning
data protection and privacy. Non-compliance can lead to legal and financial penalties, as well as
damage to customer trust.
4. Third-Party Risks: Many FinTech companies rely on third-party vendors for various services,
such as cloud hosting and payment processing. However, this reliance introduces additional
cybersecurity risks, as vulnerabilities in third-party systems can compromise the entire ecosystem's
security.
5. The integration of cutting-edge technologies such as artificial intelligence (AI), blockchain, and
the Internet of Things (IoT) introduces novel cybersecurity challenges. Despite their numerous
advantages, these technologies broaden the potential points of attack and introduce new
vulnerabilities that cybercriminals can exploit.
12
13
Aparajita Srivastava/ Astha Srivastava/ Radhika Maheshwari, Fintech Laws and Regulations 2023,
https://www.globallegalinsights.com/practice-areas/fintech-laws-and-regulations/india
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SELF-REGULATORY ORGANISATIONS
The FinTech industry has seen significant developments in recent years, particularly highlighted by
the impact of the pandemic. While traditional businesses faced challenges, the FinTech sector
experienced a turning point, with the Reserve Bank of India (RBI) recognizing its value. The RBI
has been actively framing regulations to balance customer protection, grievance handling, internal
governance, data protection, cyber security, and financial system integrity, all while supporting the
industry's growth.14
Adapting to rapidly evolving technology and business models, while also meeting the government's
goals for financial inclusion and overall growth, has been a challenge for the RBI. Instead of
introducing unified legislation, the RBI initiated a discussion on self-regulation in March 2023. This
led to the publication of the 15‘Draft Omnibus Framework for Recognising SROs for REs,’ which
acknowledges the need for self-regulation to complement existing regulations for effective sector-
specific compliance.
Self-regulation is considered a vital strategy for overseeing disruptive technologies within the
financial services sector. The draft framework, published on January 15, is structured into four
chapters detailing the attributes, functions, eligibility requirements, roles, and governance norms for
a Self-Regulatory Organization for FinTech (SRO-FT). The RBI's objective is to provide a
framework for the responsibilities and operations of SRO-FTs without imposing rigid constraints,
thus enabling regulatory adaptability in this dynamic industry.
SRO-FTs are envisioned as representatives of the FinTech sector, liaising with the RBI on behalf of
its members. They would operate independently and serve as repositories of information for
industry research and policymaking. The SRO-FTs are expected to play a crucial role in developing
industry standards and promoting a culture of compliance among members.
Overall, the RBI's approach to the FinTech sector reflects a desire to balance regulation with
industry growth and innovation. The draft framework for SRO-FTs represents a step towards
standardization and effective self-regulation within the FinTech industry. The recognition of Self-
Regulatory Organizations for FinTechs (SRO-FTs) by the Reserve Bank of India (RBI) hinges on
various factors.
14
Adarsh Vijayakumaran, A Self Regulatory dharmsankat: An Outlook on The Future of Fintech Through RBI’s
SRO Policy,https://cbcl.nliu.ac.in/contemporary-issues/a-self-regulatory-dharmsankat-an-outlook-on-the-future-of-
fintech- through-rbis-sro-policy/
15
13
These criteria encompass evaluating the robustness and inclusivity of membership, financial
strength, technological prowess, grievance resolution mechanisms, autonomy, fee structures, and
the overall suitability of the applying SRO-FT. Furthermore, the RBI retains the prerogative to
stipulate additional conditions or guidelines while granting a 'Letter of Recognition' to an SRO-FT.
The draft framework seeks to empower the FinTech sector to establish its own benchmarks and
ethical norms through a collaborative and commercially viable approach. Fundamentally, the SRO-
FT would undertake functions essential for the self-regulation of the FinTech industry. These
functions encompass the formulation of regulations and codes of conduct, oversight of their
enforcement, standardization of critical documents, provision of training and awareness, and
mediation of disputes and conflicts of interest among members.
The impartial and independent functioning of an SRO-FT is paramount for establishing overall
credibility and fostering trust in the framework. However, ensuring the prioritization of certain
members' interests while safeguarding the rights of the minority necessitates a system of objective
checks and balances. The funding of the SRO-FT by its members should be transparent, and the
RBI should contemplate issuing formal guidance within the SRO-FT framework concerning this
aspect.
However, achieving this purpose practically, especially in terms of the relationship between each
member and the SRO-FT, and the inter-se relationship between the members of the SRO-FT,
remains challenging. 16The voluntary nature of SRO-FT membership may result in industry giants
choosing to remain outside the ecosystem without significant incentives.
While the recognition of SRO-FTs would instill confidence among consumers and investors,
measures must be taken to prevent them from becoming the de-facto gatekeepers of the FinTech
industry or introducing unnecessary compliances. The RBI has encouraged stakeholders to
deliberate further on the scope of the framework, as extending it to unregulated entities with some
aspects of regulated business could disincentivize membership. Additionally, while setting
standards and monitoring compliance is crucial, self-regulation should not stifle innovation.
17
Although an SRO-FT may lack legal authority typically enjoyed by a regulatory body, this
challenge can be addressed depending on the acceptance of the self-regulatory ecosystem by
FinTechs.
16
17
14
15
However, the possibility of multiple SRO-FTs co-existing in the industry raises concerns about
regulatory arbitrage, which could undermine the framework's objective of setting unified standards
across the sector.
Looking ahead, while the RBI’s framework-based approach to self-regulation is suitable for the
dynamic FinTech industry, a more structured outline focusing on the powers and composition of an
SRO-FT may be necessary to achieve the RBI’s true intent of harmonizing innovation and
regulatory compliance. It is essential to view the existence of SRO-FTs as a step towards bringing
standardization to the industry, rather than a complete handover of regulatory authority by the RBI.
16
CHAPTER-IV
REGULATORS, TRIBUNALS, ENFORCEMENT & OTHER AGENCIES
1. The Competition Commission of India (CCI) is a governmental body established under the
Competition Act, 2002, with the primary aim of safeguarding competition within India by
preventing activities that could harm competition.
2. The Financial “Intelligence Unit (FIU) serves as the central national agency tasked with
receiving, processing, analyzing, & disseminating information related to suspected the
financial transactions. Operating primarily under the Prevention of Money Laundering Act,
2002, and the18 Prevention Related to Money-Laundering (Maintenance of Records Rules),
2005, it plays a crucial role in combating financial crimes.
3. The Insolvency & Bankruptcy Board of India (IBBI) is a regulatory authority responsible
for overseeing insolvency proceedings & regulating insolvency professionals, information
utilities, & Insolvency Professional Agencies. Established under the Insolvency &
Bankruptcy Code, 2016, it ensures the smooth functioning of the insolvency resolution
process.
4. The 19Insurance Regulatory and Development Authority of India (IRDAI) is a statutory body
mandated with regulating & promote the insurance & re-insurance sector in India.
Established under the 20Insurance Regulatory & Development Authority Act, 1999, it plays
an important role in ensuring the stability and growth” of the insurance industry.
21
5. The Pension Fund Regulatory & Development Authority (PFRDA) is a statutory body
establishe under Pension Fund Regulatory & Development Authority Act, 2013. Its primary
responsibilities include regulating and promoting the National Pension System (NPS) &
safeguarding the interests of scheme subscribers.
6. The Reserve Bank of India (RBI) is India’s central bank, founded in 1935 under the Reserve
Bank of India Act, 1934. Initially privately owned, it was nationalized in 1949. The RBI is
responsible for regulating and supervising the country’s financial system and plays a crucial
role in maintaining financial stability.
7. The Securities and Exchange Board of India (SEBI). Established in the year 1988 as a non-
statutory body & later on transformed as a statutory independent body under the Securities
& Exchange Board of India Act, 1992, 22it oversees the securities market & regulates various
market participants.
18
Aparajita” Srivastava/ Astha Srivastava/ Radhika Maheshwari, Fintech Laws and Regulations 2023,
19
Adarsh Vijayakumaran, A Self Regulatory dharmsankat: An Outlook on The Future of Fintech Through RBI’s SRO
Policy”,https://cbcl.nliu.ac.in/contemporary-issues/a-self-regulatory-dharmsankat-an-outlook-on-the-future-of-fintech-
through-rbis-sro-policy/
17
8. The International Financial Services Centers Authority (IFSCA) was founded on April 27,
2020, as per the International Financial Services Centers Authority Act, 2019. Based in
GIFT City, Gandhinagar, Gujarat, its primary mandate is to oversee and encourage the
development of international financial services centers within India.
9. The Central Board of Direct Taxes (CBDT) functions as a statutory body under the Ministry
of Finance, Government of India, tasked with overseeing direct tax laws through the Income
Tax Department.
10. The Central “Board of Indirect Taxes and Customs (CBIC), formerly recognized as the
Central Board of Excise & Customs, operates as a statutory body under the Ministry of
Finance, Government of India. One of its primary responsibilities includes preventing
smuggling and managing customs houses.
11. The Central Board of Indirect Taxes and Customs (CBIC), formerly known as the Central
Board of Excise & Customs, operates as a statutory authority under the Ministry of Finance,
Government of India. Among its functions is the prevention of smuggling and
administration of customs houses.
12. The Directorate of Enforcement (ED) is a specialized law enforcement and intelligence
agency primarily responsible for combating economic crimes in India. 23It enforces two key
economic legislations, namely the Foreign Exchange Management Act, 1999 (FEMA), and
the Prevention of Money Laundering Act, 2002” (PMLA).
13. The Clearing Corporation of India Limited (CCIL) guarantees clearing and settlement
functions for transactions in Money, Government Securities, Foreign Exchange, and
Derivative markets, ensuring their smooth operation.
14. The Institute for Development and Research in Banking Technology (IDRBT) operates as
an autonomous center for the development and research in banking technology, driving
technological advancements in the banking sector.
15. The Special Economic Zone in Gujarat International Finance TecCity (GIFT) serves as
India’s inaugural International Financial Services Centre (IFSC), fostering a conducive
environment for international financial services activities.
22
Siddha Sanghavi, Navigating Innovation and Compliance: Analysing RBI’s New Draft Regulations for Fintech’s,
https://cbcl.nliu.ac.in/banking-law/navigating-innovation-and-compliance-analysing-rbis-new-draft-regulations-for-
fintechs/.
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RBI'S INTERNAL APPROACH TOWARDS FINTECH
24
The Reserve Bank of India (RBI) has refrained from providing a specific definition of fintech
within the Indian context. While the term is a fusion of "finance" and "technology," it serves as an
umbrella term coined in recent years to encompass technological innovations impacting financial
services.
The Financial Stability Board (FSB) of the Bank of International Settlements (BIS) defines fintech
as "technologically enabled financial innovation that could result in new business models,
applications, processes, or products with an associated material effect on financial markets and
institutions and the provision of financial services." 25This description, as endorsed by the RBI and
used in several RBI reports, is currently favored by regulators attempting to formalize a definition
of fintech.
In terms of internal resource allocation, the RBI established a fintech unit within the Department of
Regulation in June 2018 to serve as a central contact point for all fintech-related activities.
Subsequently, the RBI had a dedicated fintech division within the Department of Payment and
Settlement Systems (DPSS) since July 2020. This division was elevated to a full-fledged
department, known as the Fintech Department, effective January 4, 2022. This elevation aimed to
provide increased focus on the fintech sector, facilitate innovation, and address associated
challenges and opportunities promptly.
The Fintech Department's mandate includes promoting innovation, identifying sector challenges
and opportunities, and facilitating policy interventions through research. It is tasked with examining
matters related to constructive innovations and incubations in the fintech sector, particularly those
with broader implications for the financial sector or markets falling under the RBI's purview.
Additionally, the department oversees issues related to inter-regulatory and international
coordination on fintech matters.
The regulations prescribed by the RBI for the fintech sector primarily fall into two categories:
“prudential regulation and conduct of business regulation. Prudential regulation focuses on the
solvency, safety, and soundness of financial entities and the financial system, while conduct of
business regulation pertains to how financial entities interact with their customers, including
information disclosure, competence, continuity, and fair” business practices.
24
Adarsh Vijayakumaran, A Self Regulatory dharmsankat: An Outlook on The Future of Fintech Through RBI’s
SRO Policy,https://cbcl.nliu.ac.in/contemporary-issues/a-self-regulatory-dharmsankat-an-outlook-on-the-future-of-
fintech- through-rbis-sro-policy/
25
fintechs/.
19
The RBI adopts a nuanced approach to regulating financial innovation, recognizing that a one-size-
fits-all approach may not be suitable. While some argue against excessive regulation of financial
innovation, citing potential negative impacts on competition and consumer costs, others highlight
the risks associated with an unregulated financial system, including unforeseen issues detrimental to
customer interests. Thus, regulations are seen as a means to prevent such future incidents and ensure
the stability and integrity of the financial system.
CHALLENGES FACED BY THE RBI

The rise in fintech products has unfortunately led to an increase in fraud and deceptive practices
through some fintech platforms. To address this issue, the Reserve Bank of India (RBI) has taken
measures to enhance customer protection by requiring more information to be provided to
customers. For example, as of June 2020, every fintech lending platform must disclose the name of
the lender providing the credit facility. Additionally, the RBI has introduced an ombudsman scheme
for digital transactions to establish a grievance redressal forum for customers. 26Another challenge
facing the industry is the presence of unregulated digital lenders offering credit at exorbitant interest
rates and high service charges. These entities operate outside the purview of regulatory oversight,
posing risks to consumers.
The RBI is also tasked with understanding and evaluating the innovative initiatives undertaken by
fintech players. Recognizing the dynamic nature of the fintech sector, the RBI acknowledges that a
rigid, rule-based approach may not be suitable for regulating financial innovation. What works for
regulating one product or service may be overly restrictive for another. As such, the RBI seeks to
adopt a flexible regulatory approach that balances innovation with consumer protection and market
integrity.
26
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OBJECTIVES OF SROS
27
According to the RBI framework, Self-Regulatory Organizations (SROs) in the fintech sector have
several primary objectives, including:
1. Promoting a culture of compliance among members by implementing a comprehensive code of
conduct.
2. Acting as a collective voice for members in engagements with the RBI, government authorities,
and other regulatory bodies.
3. Collecting and sharing relevant sectoral information with the RBI to aid in policymaking.
4. Encouraging research and development within the sector to foster innovation.
RESPONSIBILITIES OF SROS
Self-Regulatory Organizations (SROs) in the fintech sector have several key responsibilities towards
their members and the regulator, including:
1. Framing and enforcing a code of conduct for members to ensure ethical practices and adherence
to regulatory guidelines.
2. Monitoring adherence to the code and compliance with regulatory instructions to maintain
industry standards and consumer protection.
3. Developing a uniform, reasonable, and non-discriminatory membership fee structure to ensure
fair access to the SRO's services.
4. Establishing a grievance redress, dispute resolution, and arbitration framework for members to
resolve conflicts effectively and efficiently.
5. Offering counseling on restrictive, unhealthy, and detrimental practices to promote a healthy and
competitive market environment.
6. Promptly informing the regulator about any violations by members to maintain transparency and
regulatory compliance.
7. Submitting an annual report to the RBI within three months of the completion of the accounting
year to provide updates on the SRO's activities and member compliance.
ELIGIBILITY CRITERIA FOR SOROS

For an entity to qualify as a Self-Regulatory Organization (SRO) in the fintech sector, it must meet
the following criteria:
1. Be a not-for-profit company registered under Section 8 of the Companies Act, 2013, ensuring its
primary focus is on industry advancement rather than profit-making.
27
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2. Have sufficiently diversified shareholding, with no single entity holding 10% or more of its paid-
up share capital, to ensure no undue influence from any particular stakeholder.
3. Represent the sector and demonstrate suitability for recognition as an SRO, showing a clear
understanding of the sector's dynamics and challenges.
4. Possess or have the ability to create infrastructure to discharge SRO responsibilities continuously,
including the capability to develop and enforce industry standards.
The RBI framework also outlines key governance standards for SROs, emphasizing the following:
1. Focus on an independent board, transparency, and adherence to well-defined processes to ensure
unbiased decision-making and effective oversight.
2. Establishment of well-defined and transparent processes for overseeing members' activities,
ensuring compliance with industry standards and regulatory requirements.
3. Implementation of clear standards of conduct and consequences for violations (excluding
monetary penalties), promoting a culture of compliance and accountability.
4. Development of standards for improving compliance culture and adherence to RBI rules and
regulations, fostering a regulatory environment that prioritizes consumer protection and market
integrity.
5. Implementation of suitable surveillance methods for effective sector monitoring, enabling timely
identification and mitigation of risks.
6. Devising standardized procedures for handling disputes among members transparently, ensuring
fair and efficient resolution processes.
MEMBERSHIP CRITERIA
28
Membership in Self-Regulatory Organizations (SROs) is voluntary for all regulated entities within
the fintech sector. The Reserve Bank of India (RBI) sets the membership criteria for each category
or class of regulated entities when inviting applications for SRO recognition. It is important for an
SRO to have a diverse membership base to ensure comprehensive representation of the sector. The
RBI specifies a minimum membership requirement, which should ideally be met at the time of
application or within a specified timeline, not exceeding two years from the date of recognition.
SROs are expected to collaborate with the RBI to enhance compliance with regulatory guidelines,
promote sectoral development, safeguard stakeholders' interests, and detect early warning signals.
They are required to keep the RBI informed about sectoral developments, fulfill assigned
28
fintechs/.
22
responsibilities, and submit annual reports. The RBI retains the authority to order an audit of the
SRO's financial records and conduct inspections if deemed necessary.
While the omnibus framework provides general guidelines for SROs, specific sectoral guidelines,
including the number of SROs and membership details, will be issued separately by the relevant
departments of the RBI wherever a sectoral SRO is proposed to be established. Existing SROs that
have already been recognized by the RBI will continue to operate under the terms and conditions of
their recognition unless the new framework is explicitly extended to include such SROs.
POTENTIAL IMPACTS ON THE FINTECH SECTOR

The formation of fintech Self-Regulatory Organizations (SROs) stands as a pivotal development
with far-reaching implications for the fintech sector in India. These entities play a crucial role in
promoting responsible innovation and ensuring that all industry participants adhere to the requisite
regulatory standards. By fostering a culture of professionalism and ethical conduct, SROs contribute
to the overall integrity and credibility of the sector.
One of the key functions of SROs is to provide a collaborative platform for industry stakeholders to
come together, share knowledge, and collectively address common challenges. This collaborative
approach not only enhances the efficiency and effectiveness of the sector but also facilitates the
development of innovative solutions to industry-wide issues.
Moreover, SROs act as a bridge between the industry and regulatory bodies, facilitating
communication and understanding of industry-specific concerns. This role is particularly important
in an evolving sector like fintech, where regulatory frameworks may need to adapt quickly to keep
pace with technological advancements.
The establishment of SROs underscores the fintech sector's commitment to self-regulation and
responsible growth. By proactively engaging with regulators and taking ownership of their
regulatory responsibilities, fintech SROs contribute to the sector's overall sustainability and long-
term success.
‘
23
CHAPTER-V
ANALYSIS
29
Self-Regulatory Organizations (SROs) are mandated to operate with credibility, objectivity, and
responsibility under regulatory oversight. They derive their authority from membership agreements,
enabling them to establish and enforce ethical, professional, and governance standards for their
members. SROs play a pivotal role in developing compliance culture standards, devising
mechanisms for handling disputes, and implementing surveillance methods to effectively monitor
30
the sector. Their standards and practices are aligned with regulatory directives, ensuring a
conducive ecosystem for the industry.
The primary objectives of SROs include promoting a compliance culture, acting as industry
representatives, sharing sectoral information with regulators, and fostering research and
development. They strive to enhance professionalism, compliance, innovation, and ethical conduct
within the sector. SROs are responsible for formulating codes of conduct, disseminating sector-
specific information, resolving disputes, and educating the public about the sector's operations and
grievance redressal mechanisms.
Additionally, SROs promote best business practices, safeguard the interests of customers and
stakeholders, and provide grievance redressal mechanisms for their members. They establish codes
of conduct, develop membership fee structures, disseminate sector-specific information, and offer
resources for skill development and awareness programs. SROs collaborate closely with regulators
to ensure better compliance, sectoral development, stakeholder protection, innovation, and early
warning detection. They keep regulators informed, submit annual reports, engage in interactions,
and comply with regulatory directives.
Furthermore, SROs act as intermediaries between Regulated Entities (REs) and regulators,
facilitating effective communication and adherence to regulatory guidelines. They are required to
have a diverse membership representing the sector comprehensively and attain minimum
membership within prescribed timelines. Membership in SROs is voluntary for members,
emphasizing a commitment to fostering a robust and responsible fintech ecosystem.
24
29
CHAPTER-VI
CLARIFICATION
Self-regulatory organizations (SROs) serve as the vital link between regulatory bodies and
industries, bridging communication gaps and ensuring consensus and uniformity in the
interpretation of regulatory directives within the industry. While the Omnibus Framework provides
a comprehensive foundation, certain clarifications and considerations are necessary for its effective
implementation:
1.31 Sectoral SRO Recognition: The framework lacks specificity regarding the number of SROs to
be recognized per sector/vertical. Overpopulation of SROs within a sector could dilute their
effectiveness in representing industry interests and achieving consensus. Further detailed attention
is required to address this issue comprehensively.
2. Nature of SRO-RBI Relationship: The framework describes the relationship between SROs and
RBI as an "allyship." However, it's essential to define the specific terms and nature of this
relationship to ensure clarity and effective collaboration between the two entities.
3. Status of Section 8 Companies: Clear delineation of the status of Section 8 Companies

undertaking SRO functions but failing to secure RBI recognition is necessary. Understanding the
implications and subsequent procedural actions is crucial for regulatory compliance and operational
clarity.
4. Member Accreditation Mechanism: Introducing a mechanism for SROs to grant accreditation to

compliant members could be beneficial. This approach would incentivize new members to join
while enhancing the credibility of the SRO. Additionally, it could foster a culture of competitive
excellence in governance among industry participants.
5. Conflict of Interest Resolution: Comprehensive and meticulous addressing of conflict of interest

issues is imperative to preempt potential challenges and maintain operational integrity within the
industry. Clear guidelines and procedures should be established to identify, mitigate, and resolve
conflicts of interest effectively.
By, addressing these considerations will contribute to the successful implementation of the
Omnibus Framework, fostering a conducive regulatory environment that promotes industry
collaboration, compliance, and integrity.
30
25
fintechs/.
31
26
CHAPTER-VII
CONCLUSION
The Reserve Bank of India (RBI) has historically fostered innovation in the financial sector by
adopting a cautious approach, allowing room for initial developments without immediate regulatory
intervention. As the fintech landscape evolves and risks become more apparent, the RBI may
transition towards implementing 'light touch' or 'active' regulations to mitigate potential harms while
still fostering innovation. 32The establishment of Self-Regulatory Organizations (SROs) under the
RBI's framework represents a significant milestone in enhancing self-regulation and industry
standards within the financial sector. SROs play a vital role in promoting compliance,
professionalism, and innovation, thereby contributing to a stable and sustainable financial
ecosystem. As SROs evolve and fulfill their responsibilities, they shape the future of India's
financial sector by setting industry standards and fostering a culture of responsible conduct.33
The draft framework for fintech SROs introduced by the RBI underscores the importance of
promoting responsible conduct, ethical practices, and adherence to industry standards within the
fintech sector. By empowering industry players to operate responsibly within a regulated
environment, SROs contribute to consumer protection and sectoral growth. Feedback and
suggestions received during the consultation period will refine the framework and pave the way for
the establishment of effective fintech SROs. While the concept of self-regulation is not new in
India, exemplified by bodies like the Advertising Standards Council of India (ASCI), the
effectiveness of such bodies has been questioned due to the absence of formal regulations. To
ensure the efficacy and accountability of fintech SROs, it is crucial to include stakeholders from
both the fintech industry and relevant government departments. This multi-stakeholder approach
will help SROs operate within regulatory frameworks while addressing industry-specific concerns.34
As digital transactions continue to rise, the government may consider establishing a dedicated
FinTech tribunal to address disputes and regulate the sector effectively. Such a tribunal would
comprise judicial and non-judicial experts in digital transactions, ensuring swift and informed
decision-making in line with evolving industry dynamics. The concept of self-regulation in industry
is not new in India, exemplified by the Advertising Standards Council of India (ASCI). Given the
current lack of regulation in the FinTech sector, an SRO-FT could potentially be used as a
scapegoat by the Government in the event of a crisis. Therefore, to ensure both authority and
accountability, the
32
33
fintechs/.
27
SRO-FT should include stakeholders from the FinTech industry and the relevant government
departments. This approach would enable the SRO-FT to operate within the framework of existing
laws and regulations. As digital transactions continue to grow, the Government may consider
establishing a dedicated FinTech tribunal, similar to traditional tribunals in India, staffed with
judicial and non-judicial experts in digital transactions.
The establishment of SRO is the best policy decision by RBI and SRO will work under the
supervision and direction of RBI. The SRO power of enforcement should be noted by RBI and
separate rules should be framed giving wide power to SRO so that it can work independently.
28
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to-UPI.pdf

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1

SEMESTER & PROGRAM: X, BBA.LLB (Corporate Law)

TITLE OF THE SEMINAR PAPER

Fintech Regulation in India: Critical Analysis of Self-Regulatory

Name of the student:

Under the Guidance of

12. CHAPTER- III 11

DECLARATION BY THE CANDIDATE

(Signature of the Candidate)

AIMS AND OBJECTIVES

SOURCES OF DATA COLLECTION

SCOPE OF THE STUDY

FINTECH REGULATIONS IN INDIA

4. 9NBFC Regulations: The 10

CYBERSECURITY CHALLENGES IN FINTECH SECTOR

REGULATORS, TRIBUNALS, ENFORCEMENT & OTHER AGENCIES

CHALLENGES FACED BY THE RBI

ELIGIBILITY CRITERIA FOR SOROS

POTENTIAL IMPACTS ON THE FINTECH SECTOR

3. Status of Section 8 Companies: Clear delineation of the status of Section 8 Companies

4. Member Accreditation Mechanism: Introducing a mechanism for SROs to grant accreditation to

5. Conflict of Interest Resolution: Comprehensive and meticulous addressing of conflict of interest

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