The Reserve Bank of India issued a draft framework to set up self-regulatory organisations (SROs), which will be responsible for setting and enforcing rules for Payment Systems Operators (PSOs), on August 18. The SRO, among other things, will have to cover operators in all segments of payment systems, and will be expected to observe best practices on security, customer protection and competitiveness. They will also serve as a two-way communication channel between the payment system operators and the RBI, and work towards establishing minimum benchmarks and standards in the payments space (more on that below). Comments on the draft framework can be sent to the central bank until September 15 at dpssfeedback@rbi.org.in.

“As the payment ecosystem matures and as the number of payments systems proliferate, it becomes necessary, in the interest of optimal use of regulatory resources, that the payments industry develops industry standards in respect of system security, pricing practices, customer protection measures and grievance redressal mechanisms. While self-regulation would release regulatory resources that can be better focused on issues of systemic importance, it would, by virtue of being developed by the industry itself, be more appropriate and encourage better compliance,” RBI said in the draft framework.

Proposed functions of an SRO

A recognised self-regulatory organisation will have to:

  • Establish minimum benchmarks and standards for its members, and will have to “promptly” inform the RBI in case of any violation of the Payments and Settlement Systems Act or any other regulation issued by the central bank
  • Have “modern surveillance” methods to enable it to monitor even the most complex systems and ensure that standards are followed for all systems
  • Set up an “uniform” grievance redressal and dispute management framework across its members.
  • Conduct or promote research and development for “creating a secure and safe digital payments ecosystem”
  • “Investigate” any matter referred to by the RBI
  • Provide information such as data, sought by the Reserve Bank periodically or as requested
  • Address concerns beyond the self-interest of its membership, including consumer protection. “It shall play an important role in supplementing and complementing the present regulatory / supervisory. arrangements.”

Eligibility to be an SRO

The organisation will be set up as a not-for-profit company under the Companies Act, and the RBI will have the right to clear appointments of “important positions” in the SRO’s governing body. Apart from, that:

  • Any group or association of payment system operators that want to be recognised as an SRO by the RBI will need to have a majority of members from the industry segment it seeks to represent
  • The SRO will need to have clear bye-laws, specifying the criteria for admission of members and the functions it will discharge, as one of its main objects, among other things.

The RBI had first proposed setting up a self-regulatory body for payment system operators in February. A similar recommendation was also made by a RBI-appointed committee, headed by technocrat Nandan Nilekani, where the panel had proposed setting up a self regulatory organisation for NBFC Account Aggregators.

*Update: We had incorrectly referred to the Payments Council of India as a self regulatory body when it is in fact an industry body, as clarified by Srikanth L of Cashless Consumer. We have removed the reference to PCI. Error is regretted.  

Also read: