Self-Regulatory Organisations (SROs) in India are crucial in overseeing and regulating various sectors, especially in the financial services industry. Read here to learn more about them.
The self-regulatory organisations set and enforce rules and standards for their industry or profession, to ensure fair practice, protect consumers, and maintain trust in the system.
While they operate independently, SROs usually work under the framework of statutory regulations and are recognized by government bodies.
What Is a Self-Regulatory Organisation (SRO)?
A self-regulatory organisation (SRO) is an entity such as a non-governmental organisation, which can create and enforce stand-alone industry and professional regulations and standards independently.
- SROs are designed to oversee the practices and conduct of their members, establishing industry standards, codes of conduct, and ethical guidelines.
- They function under the broader framework of governmental regulatory authorities but operate independently to enforce rules, ensure compliance, and promote fair, ethical, and professional standards within their respective domains.
Key Characteristics of SROs:
- Membership-Based: SROs are typically made up of members from the industry they regulate. Membership can be voluntary or mandatory, depending on the sector and the nature of the SRO.
- Rule-Making Authority: SROs have the authority to create rules, standards, and guidelines that their members are expected to follow. These rules often cover professional conduct, operational standards, ethical practices, and compliance with legal regulations.
- Enforcement Powers: SROs possess mechanisms to enforce compliance among their members. This can include conducting audits, reviewing member activities, imposing sanctions, and taking disciplinary actions against members who violate the rules.
- Dispute Resolution: Many SROs provide platforms for resolving disputes between their members and between members and their clients or customers. They may offer arbitration and mediation services.
- Consumer Protection: By regulating industry practices and promoting ethical standards, SROs contribute to protecting the interests of consumers. They may also handle complaints and grievances from the public.
Self-regulatory organisations in India
An SRO shall be set up as a not-for-profit company registered under Section 8 of the Companies Act, 2013.
- It should have adequate net worth, and sufficiently diversified shareholding and must represent the sector.
- SRO shall have sufficient authority derived from membership agreements along with strong governance mechanisms.
- It shall develop standards for improving compliance culture and surveillance methods for sector monitoring.
Responsibilities of self-regulatory organisations:
- Towards members: Promote best business practices, establish minimum conduct benchmarks, disseminate sector-specific information and dispute resolution/arbitration structure.
- Towards Regulator: Ensuring regulatory compliance, promoting sector development, fostering innovation and detecting early warning signals.
Governance framework:
- Articles of Association (AoA)/bylaws shall provide for the manner of functioning of the Governing Body and specify the functions of SRO.
- At least one-third of the members of the Board of Directors including the Chairperson shall be independent.
- Compliance with relevant Acts, regulations, guidelines, directions or circulars issued by RBI.
SRO regulators in the Financial Sector
- Securities and Exchange Board of India (SEBI): While SEBI itself is a regulatory authority, it oversees several SROs within the securities and investment sector. For example, the Association of Mutual Funds in India (AMFI) functions under SEBI’s guidelines to promote and protect the interests of mutual funds and their unit holders.
- Insurance Regulatory and Development Authority of India (IRDAI): IRDAI governs the insurance sector and has facilitated the establishment of SROs such as the Insurance Brokers Association of India (IBAI), which sets standards and ethical codes for insurance brokers.
- Reserve Bank of India (RBI): In the banking and non-banking financial sector, the RBI has recognized bodies like the Fixed Income Money Market and Derivatives Association of India (FIMMDA) and the Finance Industry Development Council (FIDC) for NBFCs. These organizations play significant roles in standard-setting and self-regulation under the RBI’s oversight.
Other Sectors
- Advertising Standards Council of India (ASCI): ASCI is a voluntary self-regulatory organization that promotes responsible advertising, ensuring that advertisements conform to its Code for Self-Regulation in Advertising. It deals with complaints about misleading, false, and offensive advertisements.
- Indian Broadcasting Foundation (IBF): The IBF deals with self-regulation of content broadcasted by its member television channels. It has set up the Broadcasting Content Complaints Council (BCCC) to review and adjudicate complaints against content.
- Internet and Mobile Association of India (IAMAI): The IAMAI represents the online and mobile value-added services industry. It has been instrumental in establishing best practice guidelines for various online services, including digital payments and content platforms.
- Real Estate (Regulation and Development) Act (RERA): While RERA is a regulatory act, it mandates the establishment of Real Estate Regulatory Authorities in each state, which can be seen as a move towards more structured self-regulation within the real estate sector. These authorities ensure transparency and protect the interests of homebuyers.
Why in the news?
The Reserve Bank of India has come up with a final omnibus framework for self-regulatory organisations mandating them to set up grievance redressal mechanisms for members and a non-discriminatory fee structure, among others.
- The omnibus framework prescribes the broad objectives, functions, eligibility criteria and governance standards, which will be common for all SROs, irrespective of the sector.
- The framework is the minimum requirement and the recognised SROs will be encouraged to develop their best practices.
- RBI also told SROs to frame a code of conduct for their members and to monitor adherence to the code.
- Each sector of the regulated entities (RE) including fintechs will have a separate SRO and with the finalisation of the framework, the RBI will receive applications from various entities seeking to get SRO status.
Challenges and Criticisms
While self-regulatory organisations play a critical role in regulating their respective sectors, they sometimes face criticism regarding their effectiveness, conflict of interest, and enforcement capabilities.
- The balance between industry self-regulation and governmental oversight is a constant topic of debate.
- The effectiveness of SROs often depends on their governance structures, the clarity of their regulatory mandates, and their enforcement powers.
Conclusion
Self-regulatory organisations in India form an essential part of the regulatory ecosystem, complementing statutory regulations and working towards the orderly development of their respective sectors.
They help bridge the gap between the industry and regulators, ensuring that industry standards evolve in line with best practices and public interest.
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-Article by Swathi Satish
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