On 19th August 2024, the Reserve Bank of India (RBI) released a ‘Framework for Recognition of Self-Regulatory Organisations(SROs) in Financial Markets’ to enhance compliance culture and provide a consultative platform for policy making.
- It is based on the ‘Omnibus Framework for recognition of Self-Regulatory Organisations for Regulated Entities of the Reserve Bank’ issued on 21st March, 2024.
- The framework outlines the broad parameters like: objectives, responsibilities, eligibility criteria, membership, governance standards, among others.
Key Features of Framework:
Submission of Application Form:
RBI has invited applications from interested entities seeking recognition as an SRO in financial markets may submit their application via electronic-mail (email) or to the Chief General Manager (CGM), Financial Markets Regulation Department, RBI.
Eligibility Criteria:
i.As per the new framework, the SRO financial markets will required to be set up as a Non-for-Profit company registered under Section 8 of the Companies Act, 2013.
ii.Interested entities must have at least net worth of Rs 10 crore, and should have the ability to create infrastructure that allows it to discharge responsibilities of a SRO on a continuing basis.
ii.The new framework has prescribed that the shareholding of the SRO should be sufficiently diversified, with no entity allowed to hold 10% or more of the paid-up share capital, singly or acting in concert.
- Also, it is required for applicant to ensure that the membership of the SRO is voluntary.
iii.The applicant(s) are required to adequately represent the sector or market with a good mix of members across different types and sizes of entities.
- In case the representation is not adequate at the time of application, a roadmap, not exceeding 2 years, should be included for achieving adequate representation within a reasonable time period.
iv.The applicant and its directors are required to demonstrate professional competence and a general reputation for fairness and integrity, as examined to the satisfaction of the RBI.
- Also, the applicant and its directors must ensure that neither of them have been convicted of any offence including, moral turpitude or economic offence in the past.
v.The applicant is required to be fit and proper for the grant of recognition as an SRO, in all other respects.
- The framework has empowered the RBI that while granting recognition as an SRO, it may, if deemed necessary, prescribe such other conditions as may be important to ensure that functioning of the SRO is not prejudicial to the public interest.
Responsibilities of the SRO:
i.The SRO will be required to ally with the RBI in order to ensure better compliance with regulatory guidelines and for detection of early warning signals, among other things.
ii.The SRO will be entrusted with the responsibility to frame necessary best practices, standards codes within the regulatory framework for voluntary adoption by its members.
iii.SRO will be required to develop and implement standardized procedures for handling disputes among members or as directed by RBI, which involves processes to resolve these disputes through a transparent and consistent dispute resolution or arbitration mechanism.
About Reserve Bank of India(RBI):
Governor– Shaktikanta Das (25th Governor of RBI)
Headquarter– Mumbai, Maharashtra
Established– 1 April, 1935
