Introduction
The Indian FinTech sector has expanded rapidly, driven by innovations such as UPI, digital lending and open data. In 2023–24 India’s digital payment ecosystem processed roughly 164 billion transactions (about ₹51 trillion) and accounted for nearly half of global real-time payment volume. This transformation has made financial services more accessible but has also raised concerns around consumer protection, data security and systemic risk.
The Reserve Bank of India (RBI) and other authorities have thus balanced encouragement of innovation with safeguards. To this end, India has initiated a novel framework of industry self-regulation in FinTech. In May 2024 the RBI finalized a Framework for Recognizing Self-Regulatory Organisations (SROs) in the FinTech Sector. This approach envisages empowered, industry-led bodies that set ethical standards, monitor compliance and foster best practices, subject to RBI oversight.
As the RBI observed, “self-regulation within the FinTech sector could be one way of achieving the delicate balance” between innovation and control. In essence, an SRO-FT is designed to allow FinTech entities to align their growth with self-imposed standards and peer accountability.
Legal and Regulatory Framework
India’s FinTech ecosystem operates within a complex legal and regulatory architecture. The Reserve Bank of India Act, 1934 and the Payment and Settlement Systems Act, 2007 are the primary statutes empowering the RBI to regulate banking, payments and digital finance. Under these laws the RBI issues licences and directions for entities engaging in regulated activities.
For example, banks, non-bank financial companies (NBFCs), payment banks and prepaid instruments all require RBI registration or authorisation. Since 2020 the RBI has issued specific master directions: the Master Directions – Prepaid Payment Instruments (PPIs), 2017 and the Reserve Bank of India (Payment Aggregators and Payment Gateways) Directions, 2020 impose governance, escrow and KYC requirements on digital payment platforms.
Similarly, the RBI’s Guidelines on Peer-to-Peer Lending Platforms (NBFC-P2P, 2017) and the Guidelines on Digital Lending (September 2, 2022) govern online lending apps, including mandatory direct disbursal of loan proceeds and strict recovery processes. Insurance and investment aspects of FinTech fall under the purview of IRDAI and SEBI, respectively. In particular, SEBI has established its own regulatory sandbox and is formulating norms for tokenised securities and crowd-funded instruments, while IRDAI pilots Insurtech innovations.
Beyond sector-specific rules, cross-cutting laws such as the Information Technology Act, 2000 (for cybercrime and e-commerce), the Consumer Protection Act, 2019 (with guidelines for e-commerce and digital financial services), and the newly enacted Digital Personal Data Protection Act, 2023 are applicable to FinTech firms. The 2023 data protection law will impose fiduciary duties on data processors, including FinTech companies.
Together, these laws create a framework intended to support innovation (through initiatives like Digital India and banking correspondents) while addressing risks of fraud, privacy breaches and systemic failure. Over time the regulators have moved from entity-based licensing to more activity-based regulation (e.g. differentiated treatment of lending, payments, credit analysis), reflecting the dynamic nature of FinTech.
RBI’s Role in FinTech Regulation
The Reserve Bank of India plays a central role in fostering and regulating FinTech. The RBI has adopted a proactive stance: in January 2022 it constituted a dedicated FinTech Department to focus on innovation, financial inclusion and digital transformation. In 2023–24 this department launched pilot projects for India’s central bank digital currency (retail and wholesale) and facilitated the issuance of over 75 digital banking units in underserved areas.
It organized policy dialogues under India’s G20 chairmanship and published guidance on emerging issues (for example, clarifications on digital lending and fraud control). The RBI also actively expands digital payment infrastructure: under its vision documents and NPCI collaboration, it has enhanced UPI and RuPay to handle growing volumes.
Simultaneously, the RBI continues to tighten risk controls. It regularly issues circulars and master directions on topics such as KYC norms, cybersecurity (e.g. Information Technology Framework for the NBFC Sector), and marketplace lending. Notably, the RBI’s 2022 guidelines on digital lending required that loan proceeds be credited directly to borrowers’ bank accounts and barred lending service providers from handling cash flows, aiming to curb predatory practices.
In June 2023, the RBI capped external credit loss guarantees in digital lending to 5% of a lending institution’s portfolio, further protecting consumers. The RBI has also maintained its data localization requirement for payment systems, as confirmed in the Digital Personal Data Protection Act, 2023, which preserves sectoral directives by regulators.
Innovation is promoted through regulatory sandboxes. The RBI’s Enabling Framework for Regulatory Sandbox (released 2023) provides a safe environment for FinTech pilots (e.g. in payments, KYC, blockchain) under supervision. The RBI’s first sandbox framework in 2021 has already graduated three cohorts (digital payments, cross-border payments, MSME lending, and fraud prevention).
It explicitly excludes cryptocurrencies, while embracing blockchain, data analytics and marketplace lending experiments. Through these measures, RBI seeks to calibrate oversight with support for innovation. The SRO initiative fits into this paradigm: alongside traditional regulation, RBI now encourages industry self-governance as a complementary mechanism.
As the RBI stated at the Global Fintech Fest, an SRO-FT “should gain the legitimacy and credibility to not only frame baseline standards and rules of conduct, but also effectively monitor and enforce them,” thereby building a collaborative regulatory environment.
Framework for Self-Regulatory Organisations (SROs)
In line with these objectives, the RBI released its final Framework for Recognising Self-Regulatory Organisation(s) for the FinTech Sector on 30 May 2024. This framework defines the concept and process of SRO-FTs. An SRO-FT is envisaged as an industry-led not-for-profit entity, established by FinTech stakeholders, that promotes discipline and standards within the sector. Its purpose is to guide member conduct, enforce ethical and technical norms (such as data privacy and consumer grievance policies), resolve inter-member disputes, and facilitate regulatory compliance across members.
Key functions outlined in the framework include standard-setting (codes of conduct, data/privacy standards, standardized documentation), accreditation of service providers (with RBI approval), surveillance of industry practices, and development efforts (training, research, sharing sector intelligence). Crucially, the SRO-FT’s codes and standards are meant to supplement, not replace, statutory regulation: RBI emphasized that “codes/standards/rules set… shall not be a substitute to the direct prescribed regulatory framework” for FinTech.
The framework provides that any representative FinTech association (a Section 8 company under the Companies Act, 2013) meeting the eligibility criteria may apply for recognition as an SRO-FT. The RBI will examine applications, and if an applicant meets all requirements, grant a “Letter of Recognition”. The names of recognized SRO-FTs will be published on the RBI website. The number of SRO-FTs depends on applications received, and RBI reserves the discretion “to not grant recognition to any such application”.
Once recognized, an SRO-FT must continually adhere to the framework’s provisions; failure to do so, or to act in the public interest, may lead RBI to impose additional conditions or revoke recognition. This step marks the formal introduction of self-regulation to India’s FinTech regulation, aligning India with a global trend where sectors (e.g. mutual funds, insurance broking) have parallel industry bodies under regulatory oversight.
Key Requirements of the SRO Framework
Legal Structure and Governance
Under the framework, an SRO-FT must be incorporated as a Section 8 not-for-profit company. Its Memorandum/Articles of Association must expressly state that operating as an SRO-FT is its primary objective. Shareholding must be broadly diversified: no individual entity may hold 10% or more of voting capital, alone or in concert.
The SRO’s governance is bound by stringent standards. Its articles must contain robust conflict-of-interest and independence provisions and explicitly preserve the SRO’s functional autonomy. The AoA should also detail clear criteria for admitting, suspending or expelling members. The Board of Directors must be professionally managed, with fit and proper directors.
At least one-third of the Board (including the chairperson) must be independent members unaffiliated with any FinTech firm. The remaining directors should largely represent the FinTech industry but specifically those sectors not already regulated by other authorities (for example, FinTech startups outside banking).
The Board must implement procedures to periodically assess the ‘fit and proper’ status of its members and KMP and promptly report any adverse changes to the RBI. The framework explicitly allows the RBI to intervene in governance: the RBI may add conditions during recognition, and if necessary, remove any board member or management official from an SRO-FT, providing them an opportunity for representation. This ensures ongoing regulatory oversight over the SRO itself. Overall, the emphasis is on transparency, accountability and impartiality in the SRO’s internal governance.
Financial and Membership Criteria
To ensure financial robustness, the SRO-FT applicant must demonstrate sufficient capital. The framework requires a minimum net worth of ₹2 crore (INR 20 million) within one year of RBI recognition, or before commencing operations as an SRO-FT, whichever is earlier.
This capitalization, along with a dedicated infrastructure (robust IT systems, grievance-handling capability and skilled manpower), is expected to enable the SRO-FT to fulfill its responsibilities consistently. Membership criteria aim to ensure the SRO genuinely represents the FinTech ecosystem.
The applicant’s membership must span the industry in terms of entity size, stage and activity type. If initial membership is not comprehensive, the SRO must present a feasible roadmap to achieve broad representation; failure to do so can trigger refusal or revocation of recognition. Membership in the SRO-FT must be voluntary and limited to FinTech companies. The SRO-FT itself must be domiciled in India, though it may admit foreign FinTech affiliates as members.
Membership fees are permitted but must be reasonable and non-discriminatory: the fee structure may scale by size or service offering, but it must be designed so that all members “irrespective of membership fees enjoy equal rights and representation”. In essence, no member should purchase preferential authority. The legal framework envisages that the SRO-FT derives its standard-setting power from the contractual membership agreements with its members.
As a further inducement, the RBI has indicated that it will “encourage” FinTech entities to join a recognized SRO-FT, although membership is not made mandatory by law.
Compliance and Enforcement Mechanisms
A cornerstone of the SRO-FT framework is enforcement of standards among members. The SRO-FT must formulate and implement a structured oversight regime. Members are expected to report their activities to the SRO-FT, enabling it to monitor compliance and detect exceptions.
The SRO-FT should deploy surveillance tools and periodic audits to review member performance, while strictly maintaining the confidentiality of any proprietary data collected. It is required to establish clear codes of conduct and impose consequences for breaches. The consequences may include counselling, cautioning, public reprimand or expulsion from the SRO-FT.
The framework allows the SRO-FT to levy monetary penalties on members for violations, subject to RBI approval to ensure that such penalties are “reasonable and not prohibitive”. In fact, the SRO-FT is explicitly empowered to bar or remove a FinTech member for a specified period—or even permanently— “if the circumstances so require”. These enforcement mechanisms are intended to foster a culture of compliance within the industry.
Additionally, the SRO-FT is entrusted with providing grievance redressal and dispute resolution for its members, ensuring these processes are fair, efficient and transparent. In carrying out its functions, the SRO-FT must nevertheless acknowledge the primacy of statutory rules: its standards must not contravene any applicable law or RBI directive, and it “should ensure that the data collected… is in compliance with…the necessities of the various statutory legislations”.
Finally, recognized SRO-FTs must furnish true information to RBI and continue to meet the framework’s requirements on an ongoing basis; the RBI may revoke recognition if these conditions are violated.
Opportunities from Self-Regulation
Self-regulation offers several potential advantages for India’s FinTech sector. First, it can enhance industry discipline and consumer trust. By adopting shared codes of conduct and best practices, FinTech firms demonstrate their commitment to ethical standards even in areas where formal rules may be nascent.
As noted in the SRO framework, self-governance “could empower the sector to demonstrate its commitment to responsible conduct and innovation”. A credible SRO-FT can serve as a central authority on emerging norms—for example, by developing and promoting model data protection standards or transparent pricing practices tailored to FinTech platforms. This can complement regulatory efforts, accelerate the adoption of safe practices, and reduce risks of reckless behavior.
Second, self-regulation can increase adaptability. The FinTech space evolves rapidly, and regulators may struggle to keep pace. Industry participants, being closer to technological and business innovations, are well placed to update rules swiftly. The RBI framework observes that self-regulation could confer “the advantage of adaptability to rapid technological advancements and evolving market dynamics” on the FinTech sector.
In practical terms, an SRO-FT can consult members and revise guidelines when, say, a new payment technology emerges. This agility may allow India’s FinTech industry to maintain its global lead (e.g. India handles nearly 50% of world’s instant payments) while keeping fraud and operational risks in check.
Third, self-regulation can build capacity through education and collaboration. The framework envisions SRO-FTs facilitating compliance training, research and knowledge-sharing. SRO-FTs are encouraged to disseminate sector updates via bulletins, conferences and workshops, and to mentor smaller or nascent firms.
This can raise overall standards of governance and risk management across the industry. Moreover, SRO-FTs can serve as a two-way channel between industry and regulators.
For example, the RBI has noted that an SRO-FT would “actively participate in the regulatory dialogue”, helping regulators understand ground realities. Anecdotal industry comments suggest that SROs could formalize engagement with RBI: one FinTech executive remarked that without an SRO it is “difficult to have [a] structured conversation with RBI,” whereas with an SRO the ecosystem and regulator “lives easy” with less uncertainty.
Finally, SRO-FTs could reduce the regulatory burden on authorities by taking on routine oversight tasks. In principle, this delegation would allow regulators to focus on systemic issues, while the SRO-FT enforces sector-specific norms. As one report noted, a recognized SRO-FT “can enforce fair lending norms to prevent misuse of digital lending” and thereby assist RBI in its supervisory role.
Challenges and Risks of Self-Regulation
Despite these opportunities, self-regulation in FinTech also carries significant challenges. Foremost is the risk of conflicts of interest. An SRO-FT is comprised of industry participants whose commercial motives may conflict with strict enforcement.
Maintaining impartiality is critical; the RBI therefore requires the SRO-FT to preserve its autonomy and articulate its commitment to unbiased governance. Nevertheless, the potential remains for dominant market players to influence an SRO’s agenda or turn a blind eye to non-compliant members. Ensuring that the independent directors and governance safeguards in the SRO’s structure are genuinely effective will be essential.
Another challenge is coverage. Membership in an SRO-FT is voluntary, and not all FinTech firms may choose to join. The RBI can encourage participation but cannot mandate it by law. This creates the possibility of a bifurcated sector where non-members operate without the enhanced discipline of the SRO.
Furthermore, even among members, enforcement relies largely on peer pressure and incentive; unlike statutory regulators, an SRO-FT cannot impose penalties beyond what members have contractually agreed. To address this, the RBI framework endows SRO-FTs with punitive powers (warnings, fines, suspension of membership) and allows the SRO-FT to derive authority from membership agreements. However, its actual coercive impact will depend on the willingness of members to comply.
Coordination between the SRO-FT and regulators is also delicate. The RBI has cautioned that SRO standards “shall not be a substitute” for legal compliance. In practice, overlapping jurisdiction can cause confusion: for example, if an SRO-FT develops a code on customer disclosures, it must still align with RBI’s statutory guidelines for lending and payments.
Care must be taken to avoid conflicting instructions. Moreover, the RBI retains the authority to step in: it may add conditions during recognition, impose Board observers, or even remove SRO leaders if public interest is at risk. While this ensures accountability, it also means the SRO’s independence is circumscribed by regulatory intervention powers.
Finally, there is the question of effectiveness. The concept of SROs in finance is not entirely new in India, but their success has been mixed (cf. AMFI for mutual funds, IBA for bankers).
A strong compliance culture needs time to develop. There is a risk that an SRO-FT might focus on promoting member interests over consumer safeguards unless its mandate is vigorously upheld. The RBI framework itself acknowledges this by reserving “the right to not grant recognition to any SRO-FT” and by subjecting recognized SRO-FTs to ongoing review.
Recent Developments and Outlook
The SRO-FT initiative is already taking shape. On 28 August 2024 the RBI issued a press release announcing that it had “decided to recognise the Fintech Association for Consumer Empowerment (FACE) as an SRO-FT”. FACE, an industry body of digital lending firms, thus became India’s first official FinTech SRO.
According to news reports, FACE’s membership covers roughly 80% of India’s digital lending volume, signaling substantial industry support. The RBI also noted that out of three applications received, it had returned one for resubmission (with deficiencies to be addressed) and was examining another. The Governor of the RBI indicated that more SRO-FTs could be approved in the future, based on the nature of applications.
In early 2025 another SRO bid emerged. Members of the Internet & Mobile Association of India’s Fintech Convergence Council (comprising major fintech startup founders) announced plans to form a new SRO entity. Industry insiders explained that establishing this SRO would provide a “structured mechanism” to communicate with the RBI and reduce regulatory uncertainty.
With this move, the sector now expects multiple SROs covering different FinTech sub-sectors. The RBI framework allows for more than one SRO-FT: the number of recognitions will depend on applicant quality and breadth of representation.
Looking ahead, self-regulation will operate in concert with ongoing regulatory developments. The RBI and other regulators continue to update rules in parallel. For instance, since 2022 the RBI has refined guidelines on payment aggregators (tightening e-mandate processes), digital lending (enhancing consumer safeguards), and cybersecurity (requiring resilience frameworks).
SEBI has expanded its sandbox for fintech innovations, and the Digital Personal Data Protection Act, 2023 (enacted August 2023) will soon impose data fiduciary obligations on fintech platforms. It will be important for SRO-FTs to integrate these evolving requirements into their codes.
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