Understanding SROs in India: Roles & Governance

Image depicting the concept of Self-Regulatory Organisations (SROs) for regulated entities in India, highlighting their roles and governance
Understanding SROs in India: Roles & Governance

Self-Regulatory Organisations (SROs) in India are industry-led bodies pivotal in upholding and advancing standards within specific sectors. The Reserve Bank of India (RBI) has established a comprehensive framework for recognizing SROs for its regulated entities, defining their objectives, responsibilities, eligibility criteria, and governance standards in the financial sector.

Objectives of SROs

SROs, under the RBI framework, aim to:

  • Foster a culture of compliance among members through a comprehensive code of conduct
  • Serve as a collective voice for members in engagements with regulatory bodies
  • Gather and share sector-specific information with the RBI to inform policymaking
  • Promote research and development within the sector to drive innovation

Responsibilities of SROs

SROs are tasked with various key responsibilities, including:

  • Formulating and enforcing a code of conduct for members
  • Monitoring adherence to the code and regulatory instructions
  • Establishing a fair membership fee structure
  • Providing grievance redressal and dispute resolution mechanisms
  • Offering counseling on unethical practices
  • Reporting member violations promptly to the regulator
  • Submitting annual reports to the RBI within stipulated timelines

Eligibility Criteria for SROs

Entities seeking SRO status must meet certain criteria:

  • Registration as a not-for-profit company under Section 8 of the Companies Act, 2013
  • Diverse shareholding structure with no entity holding 10% or more of paid-up share capital
  • Representation of the sector and suitability for SRO recognition
  • Possession or ability to create infrastructure for sustained SRO operations

Governance Standards for SROs

The RBI emphasizes robust governance for SROs, including:

  • Independent board, transparency, and defined processes
  • Oversight of members' activities through transparent processes
  • Clear standards of conduct and consequences for violations
  • Surveillance methods for sector monitoring
  • Procedures for transparent dispute resolution among members

Membership Criteria

Membership in SROs is voluntary for regulated entities, with RBI-prescribed criteria for each category. SROs should ideally achieve the minimum membership requirement at the time of application or within two years of recognition.

Relationship with the Regulator

SROs are expected to collaborate with the RBI to enhance compliance, sector development, stakeholder protection, and early warning signal detection. They must keep the RBI informed, carry out assigned work, and submit annual reports. The RBI can audit and inspect SROs as necessary.

Sector-Specific Guidelines

While the omnibus framework provides general parameters, sector-specific guidelines will be issued separately by RBI departments for setting up sectoral SROs.

Existing SROs

Existing SROs recognized by the RBI will continue under their current terms, unless the new framework is specifically extended to them.

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