Omnibus Framework for Recognising Self-Regulatory Organisations (SROs) for Regulated Entities (REs)

• Issued by: Reserve Bank of India (RBI)
• Date: February 2024
• Objective: To establish a uniform framework for the recognition and functioning of Self-Regulatory Organisations (SROs) across all financial sectors regulated by the RBI.

Context and Background

• Self-Regulatory Organisations (SROs) are industry-led bodies that set and enforce standards of conduct and practice among their members. 
• In India, some sectors already have SROs (like AMFI for mutual funds), but a standardized approach was missing—especially for non-bank financial companies (NBFCs), fintechs, payment systems, etc.
• Recognizing the need for a systematic, uniform, and transparent framework, the RBI introduced the Omnibus Framework. The term "omnibus" implies that the framework applies universally across sectors.

Key Objectives of the Framework

Promote Responsible Market Behaviour

• By allowing peer oversight, the RBI expects SROs to encourage ethical conduct and compliance.

Improve Efficiency in Regulation

• SROs can act as intermediaries between the RBI and REs, helping reduce the direct regulatory burden on RBI.

Foster Industry Participation and Ownership

• A move toward participatory regulation—industry players take responsibility for self-discipline.

Facilitate Innovation and Adaptability

• Sector-specific challenges can be addressed quickly by SROs without waiting for regulatory intervention.

Salient Features of the Framework

Eligibility Criteria for SROs

• Must be a not-for-profit company registered under Section 8 of the Companies Act, 2013.
• Should represent the interests of a significant number of REs in a particular sector.
• Must have adequate infrastructure, financial and technological, to carry out its functions.
• Should possess demonstrated track record, experience, and credibility.

Functions of SROs

• Develop and enforce a Code of Conduct for their members.
• Promote best practices, ethical standards, and transparency.
• Facilitate grievance redressal and disciplinary mechanisms.
• Act as a communication bridge between REs and the RBI.
• Educate and build capacity within the sector, including financial literacy initiatives.

Governance Norms

• SROs must have a diverse, professional, and independent board.
• Adequate representation of industry stakeholders is mandatory.
• Should implement robust conflict of interest policies.
• Transparency in decision-making, regular disclosures, and internal audits are required.

Recognition and Regulation by RBI

• The RBI is the sole authority to recognize SROs under this framework.
• RBI may revoke recognition in case of non-performance or violation of norms.
• SROs will be subject to RBI inspection and oversight.
• RBI may also specify sector-specific conditions at the time of recognition.

Significance of the Framework

Enhancing Regulatory Depth

• SROs supplement RBI’s oversight by providing sectorial insights and ground-level monitoring.

Encouraging Market Discipline

• Encourages peer regulation, which is often more adaptive and effective in promoting responsible behaviour.

Boost to Financial Innovation

• In emerging sectors like fintech, innovation often outpaces regulation. SROs can help ensure responsible innovation.

Resource Optimization

• Allows RBI to concentrate on systemic risk and macro-level policies, while SROs manage day-to-day compliance and conduct standards.

Challenges and Safeguards

Challenges:

• Risk of regulatory capture: SROs may act in favor of larger players.
• Enforcement effectiveness: SROs may lack legal powers to enforce decisions.
• Conflicts of interest: Especially if SRO board members are active market players.

RBI’s Safeguards:

• Strong oversight provisions, including power to inspect, audit, and revoke.
• Mandatory inclusion of independent directors and ethics committees.
• Strict conditions on membership, decision-making, and transparency.

Global Examples of SROs

• FINRA (Financial Industry Regulatory Authority) – USA: Oversees broker-dealers and enforces ethical conduct.
• FCA-recognized SROs – UK: Operate under defined legal structures with oversight.
• India’s framework draws from these global models while adapting to the country’s regulatory landscape.