Can SROs Ensure Fair Play in the AA Ecosystem? RBI’s New Framework Examined

The Reserve Bank of India (RBI) invited applications for self-regulatory organisations (SROs) overseeing the Account Aggregator (AA) ecosystem. This follows the issuance of the ‘Framework for Recognising SRO-AAs’ by RBI’s Regulation Department.Notably, this is not the first time the central bank has issued a framework for SROs, with those for SROs in the fintech sector and for NBFCs already existing.

For applying as an SRO-AA, entities can submit their applications via the PRAVAAH portal by June 15, 2025.For context, the account aggregator ecosystem enables data sharing across various financial sector institutions.What are the characteristics of an SRO-AA?To begin, RBI directs SRO-AAs to establish ethical, professional, and governance codes for participants in the ecosystem and monitor members’ compliance with these codes.



Entities must establish an independent board, ensure transparency, and implement well-defined processes. They should provide members with guidance and promote capacity-building initiatives to implement technical requirements in the AA ecosystem.Finally, the entities must operate independently and impartially while avoiding conflicts of interest and ensuring unbiased oversight of their members.

objectivesSRO-AAs must also achieve certain objectives:Adopt well-defined and consultative processes to outline members’ conduct and monitor compliance with these rules.Promote regulatory compliance and public good by AA participants.Act as the collective representative of the AA ecosystem and provide suggestions to and engage with the RBI, the financial sector regulators, and other stakeholders.

Aid RBI in policymaking by sharing relevant information.Encourage research and development within the sector to promote innovation while adhering to compliance and self-governance standards. What are the functions of an SRO?ESTABLISHING CODES AND BENCHMARKSFrame a code of conduct for members and their outsourced technology service providers (TSPs) and monitor their compliance.

Develop standardised model formats based on specific requirements like agreements between FIPs and other entities. Promote fair competition by establishing ecosystem-wide norms and avoiding unfair trade practices by members through collaborative efforts.Collaborate with the RBI to ensure responsible usage of financial information.

Conduct a continuous evaluation of the ecosystem’s requirements and formulate mechanisms to periodically amend codes depending on participants’ needs. These codes should comply with the applicable statutory/regulatory instructions rather than substituting the regulatory framework of the AA ecosystem. Establish benchmarks for various functions by members.

oversight and market disciplineDevelop a structured oversight framework and baseline surveillance standards aligning with regulatory expectations on fraud prevention, trade practices, dispute resolution, fair usage, etc. Ensure the confidentiality of personal data while restricting data collection to the essential information required for the ecosystem’s development. The SRO-AA must adhere to relevant data protection laws.

Specify clear standards of conduct and consequences for violating agreed codes/rules, such as counselling, caution, reprimand, suspension, or expulsion of members. However, the entity cannot impose monetary penalties on members.developmental Promote understanding of statutory or regulatory provisions and provide necessary resources for members to exchange expertise.

Moreover, SRO-AAs can arrange training and awareness programs for skill development in contemporary issues.Educate the public about account aggregation, open finance, grievance redressal, and dispute resolution mechanisms available to them.Disseminate sector-specific information through periodicals, bulletins, and pamphlets containing publicly available data to create awareness among members.

Submit statistics related to the AA ecosystem to the RBI through digital mode. common services and infrastructureDevelop practices and provide members with assistance for the adoption of technical specifications and utilisation of common services and infrastructure.Maintain records of participants and TSPs in the ecosystem.

Deploy simple and intuitive dashboards/metrics/performance indicators for financial service regulators like participants and other stakeholders. GRIEVANCE REDRESSALAlongside maintaining a grievance redressal and dispute resolution mechanism for participants, SRO-AAs should offer counselling on restrictive, unhealthy, and other detrimental practices in the ecosystem.responsibilities toward RBI and other financial sector regulatorsRegularly inform the RBI about the developments, trends and concerns in the AA ecosystem alongside any violations of any rules by its members.

Supply data/information sought by the RBI or financial sector regulators periodically or as advised.Conduct work, examine proposals/suggestions, or discharge functions/directions assigned by the RBI. Submit an Annual Report to the concerned bodies within three months of the completion of the accounting year.

Engage in periodic interactions with the RBI. The RBI may also inspect the SRO-AAs books itself or via an audit firm, the expense of which shall be borne by the SROs themselves. What are the eligibility requirements for registering as an SRO-AA?Entities functioning as SROs must meet the following criteria:Exist as a not-for-profit company under Section 8 of the Companies Act, 2013.

Have a minimum net worth of Rs 2 crore within one year after recognition as an SRO-AA or before commencing operations (whichever is earlier).Contain diversity in its shareholding with no entity holding more than 10% of its paid-up share capital.Demonstrate resources to deploy a robust IT infrastructure and technological solutions within a reasonable timeframe.

The applicant must not be involved in any legal proceedings or convicted of offences related to moral turpitude or economic crimes impacting the AA sector.Who can become members of SRO-AAs?Participants within the AA ecosystem, like financial information providers (FIPs), financial information users (FIUs), and non-banking financial companies-account aggregators (NBFC-AAs), alongside other regulated entities (REs) of financial sector regulators are eligible for membership. Further, an SRO-AA must have at least 25 unique entities each from FIPs and FIUs as members, failing which the registration can be revoked.

The membership remains voluntary, and while its fee structure may vary depending on size, intent, and capability, it should be reasonable and non-discriminatory.What is the application process for registration?Entities applying for recognition as SROs must submit specific documents. These include a copy of the Memorandum of Association, Articles of Association of the proposed SRO-AA, audited balance sheets (for companies already in existence), and details of the constitution of the Board and its Directors (including their roles and responsibilities).

An authorised person should sign the application on behalf of the applicant under the Board of Directors.In case an applicant is deemed suitable, the RBI would issue a “Letter of Recognition” as an SRO-AA. In case of rejection, the entity can approach the central bank to address any objections within 15 days from the date of the dispatch of the intimation.

Further, the RBI furnishes the recognition subject to certain conditions:Information furnished by the applicant must be true and not misleading. The applicant must be “fit and proper” for the grant of recognition as an SRO-AA.Additionally, recognition is granted subject to the SRO-AA operating in line with the objectives and responsibilities outlined in the framework and adhering to its governing terms and conditions.

Finally, the RBI can revoke its recognition if it finds the entity’s functioning to be detrimental to the public interest or any stakeholders or when the SRO-AA contradicts its objectives. What governance measures must SROs adopt?The SRO-AA’s Articles of Association (AoA)/bylaws should stipulate the manner of functioning for the Board of Directors and address any conflict of interest issues. This document shall also detail the SRO-AA’s functions and criteria for the admission and removal of members.

Further, the Board shall frame a rotation policy for its Directors and subsequently inform the RBI about any changes in directorships. Besides this, the Board must ensure the presence of skilled human resources and technical capability to perform its duties. terms for the board of directorsThe Directors must fulfil the “fit and proper” criteria framed by the entity’s board, with the RBI’s view on such status of the directors being final.

These individuals should not be involved in any legal proceedings impacting the ecosystem adversely or convicted of any offence comprising “moral turpitude/economic offence” in the past.At least one-third of the Board including the chairperson should be independent and without active association with the participants of the AA ecosystem. NBFC-AAs should nominate not more than one-fourth members of the Board.

The board should comprise Directors with varied expertise and experience from FIPs and FIUs, with at least one director possessing expertise in the regulation of banks and financial services.Besides this, the entity may constitute committees and working groups dealing with specific areas, each of which should have an independent chairperson. Why this matters- Are SROs effective?While explaining its rationale behind this decision, the RBI noted a potential increase in operational issues stemming from the interactions of multiple actors—financial information providers (FIPs), financial information users (FIUs), and NBFC-AAs—transmitting financial information within the ecosystem.

Consequently, the central bank believes that SROs will enable a balance between regulation and innovation in the AA space.However, following the release of RBI’s Omnibus framework for SROs for regulated entities (REs) in March 2024, stakeholders, including legal experts, raised concerns. For instance, the Vidhi Centre for Legal Policy stated that despite SROs acting as a proponent of ‘delegated regulation’ and substituting traditional government regulation, this approach faces implementation challenges.

Since the RBI, as the principal, relies on SROs to implement regulations, a potential ‘agency challenge’ arises, where SROs may act in their own interest rather than prioritizing regulatory objectives. Additionally, RBI’s framework lacked clarity on the specific nature of guidance that SROs should provide to regulated entities (REs). This ultimately leads to low incentives and inadequate assessment of REs’ concerns by the SRO.

MediaNama has also contacted the Sahamati CEO B.G. Mahesh for his comments on the development and will update the story as soon as we hear from him.

For context, Sahamati is a collective of the AA ecosystem, acknowledged as a potential SRO model for online dispute resolution (ODR) in Niti Aayog’s 2022 report on India’s ODR policy. data governance issues in the aa ecosystem On another tangent, the SRO-AA framework also seeks to include TSPs. For context, TSPs decrypt data transferred by the AAs to the FIUs, acting as an intermediary layer between the two.

Speaking to MediaNama previously, CAMSfinserv CEO Tejinder Singh expressed reservations about TSPs being an unregulated entity in the ecosystem. Singh recalled instances of TSPs functioning through non-compliant means and violating fair usage guidelines, ultimately causing FIPs to ban certain AAs working with such TSPs. Besides this, he also stated that guidelines concerning the FIU’s role in the outsourcing agreement with TSPs are silent and that for TSPs to exist, they will have to join SROs.

Also Read:Interview: CAMSfinserv CEO explains the role of Technology Service Providers in the Account Aggregator ecosystemSummary: RBI shares framework for Self-Regulatory Organisation(s) in the FinTech SectorQ&A with Sahamati CEO BG Mahesh on Account Aggregators and Consent ManagersThe post Can SROs Ensure Fair Play in the AA Ecosystem? RBI’s New Framework Examined appeared first on MEDIANAMA..