Self-Regulatory Organisation (SRO) Explained

December 2, 2020
Self-Regulatory Organisation

A Self-Regulatory Organisation (SRO) is a non-governmental organisation that sets and enforces rules and standards relating to the conduct of member entities in the industry, with the aim of protecting the customer and promoting ethical and professional standards.

The SRO is expected to resolve disputes among its members internally through mutually accepted processes to ensure that members operate in a disciplined environment and even accept penal actions by the SRO. An ideal SRO would function beyond the narrow self-interests of the industry and address larger concerns, such as protecting customers, furthering training and education and strive for development of members, the industry and the ecosystem as a whole.

Regulations, standards, 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, but do not replace, applicable laws or regulations.

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Characteristics of an Self-Regulatory Organisation

  • Authority, derived from membership agreements, to set behavioural and professional standards and enforce them on the members;
  • Objective and well-defined processes to make rules and enforce them among members;
  • Standardised procedures for handling conflicts and disputes, as well as methods to resolve them through a transparent and consistent dispute resolution mechanism;
  • Effective means of oversight over its members and ensuring that they adhere to the rules and regulations of the industry as also mutually accepted ethical and professional standards of behaviour; and
  • Develop surveillance methods for effective monitoring.

Eligibility for Recognition of an SRO by RBI

  • The SRO shall be set-up as a not-for-profit company under the Companies Act, 2013.
  • Only regulated payment system entities, viz, banks and non-bank PSOs can be members of an SRO
  • The SRO shall be professionally managed with clear bye laws.
  • The memorandum / bye laws of the SRO shall specify the criteria for admission of members and the functions it will discharge. It shall also provide for the manner in which the Board of Directors (governing body) would function.
  • RBI may, if it deems necessary, require that the appointment of important positions in the Board of Directors of the SRO be subject to its prior approval.
  • The SRO shall be financially viable to carry on the activities handled or assigned to it. The fee for membership of the SRO shall be reasonable and uniform across all members.

 Functions and Responsibilities of the Recognised SRO

  • The recognised SRO shall serve as the representative voice of its members in public discussions or in interactions with RBI or any other authorities or in any communication with other bodies.
  • The recognised SRO shall work towards establishing minimum benchmarks, ethical and behavioural standards and help instil professional and healthy market behaviour among its members. It shall work towards development of not only the entities it represents but also the payment industry as a whole.
  • The recognised SRO shall promptly inform RBI about any violation that comes to its notice, of the provisions of the Payments and Settlement Systems Act, 2007 or any other guidelines / regulations / directions issued by RBI.
  • The recognised SRO shall establish an uniform grievance redressal and dispute resolution framework across its members, including addressing inter-PSO issues.
  • The recognised SRO shall impart training to the staff of its members and others. It shall conduct awareness programmes for spreading awareness about safe payment transactions.
  • The recognised SRO shall conduct or promote research and development for creating a secure and safe payments ecosystem.
  • The recognised SRO shall carry out any work assigned to it by RBI and examine any proposals or suggestions referred to it by RBI.
  • The recognised SRO shall provide any information, including data, sought by RBI periodically or as requested.
  • The recognised SRO shall be invited for periodical interactions with RBI, and shall reasonably be expected to look at the larger picture of the segment / industry in offering its views / inputs / suggestions. The SRO shall strive to address concerns beyond the interest of its membership, viz. to protect customers, participants and other stakeholders in the ecosystem.
  • The recognised SRO shall play a constructive role in supplementing and complementing the present regulatory / supervisory arrangements.
  • The recognised SRO shall abide by the directions issued by RBI from time to time.
  • The recognised SRO shall continue to adhere to the criteria under which it has been recognised as an SRO at all times.

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