RBI Recognises Second Fintech SRO: Implications for Bank Partnerships

01

Expansion of the Fintech SRO Framework

The Reserve Bank of India (RBI) has formally recognised the Unified Fintech Forum (UFF) as the second self-regulatory organisation (SRO) for the fintech sector. This move establishes a dual-track regulatory oversight mechanism, building upon the existing framework where the Fintech Association for Consumer Empowered (FACE) was already operational.

This shift signifies a transition from a purely top-down regulatory approach to an industry-led model. The SROs are empowered to set rules, monitor member conduct, and act against violations, creating a buffer between the central bank and individual fintech entities. For banks and NBFCs, this means their fintech partners will now be subject to standards defined by these recognised bodies.

02

Powers and Authority of Fintech SROs

The primary function of these SROs is to act as a bridge between the regulator and the industry. They are tasked with drafting codes of conduct that align with RBI’s broader objectives while reflecting the operational realities of digital lending and payments.

Their authority includes the power to investigate grievances and monitor whether members are adhering to prescribed compliance standards. However, their authority has limits. While they can penalise or expel members for non-compliance, the RBI retains the ultimate power to intervene if an SRO fails to maintain systemic integrity.

SROs function as the first line of defence, ensuring that fintech innovations do not bypass consumer protection or financial stability norms.

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03

Distinguishing Between FACE and UFF

While both organisations operate under the RBI’s SRO framework, they cater to different segments and nuances of the fintech ecosystem. FACE has historically focused on consumer empowerment and digital lending standards, whereas the recognition of UFF suggests a broader scope of industry representation.

Lenders must identify which SRO their partners belong to, as the specific codes of conduct may vary slightly in their operational requirements. The presence of two bodies allows for a more diverse representation of fintech business models, ranging from pure-play digital lenders to infrastructure providers and payment aggregators.

04

Challenges in Industry-Led Enforcement

The transition to a self-regulatory model is not without hurdles. One significant challenge is the potential for conflicts of interest, where an industry body may be perceived as being too lenient on its own members. The RBI maintains oversight of the SROs themselves to mitigate this risk.

Another challenge involves the enforcement of rules on non-members. While SROs can govern their constituents, fintechs that choose not to join an SRO may still operate in a regulatory grey area until the RBI mandates membership or banks refuse to partner with non-aligned entities.

05

Impact on Bank-Fintech Partnerships

For traditional financial institutions, the formalisation of SROs provides a clearer benchmark for due diligence. Instead of independently vetting every technical and ethical aspect of a fintech partner, banks can now look for SRO compliance as a primary indicator of reliability.

This mechanism is expected to streamline the onboarding of third-party digital distribution partners. By adhering to SRO-mandated standards, fintechs can demonstrate compliance-ready workflows that satisfy the risk management requirements of regulated banks and NBFCs.

• Update third-party risk management frameworks to include SRO compliance checks.
• Align internal audit requirements with the codes of conduct issued by FACE and UFF.
• Monitor SRO bulletins for updates on prohibited practices or emerging risks in digital journeys.

06

What this means for execution

The shift toward SRO-led oversight requires BFSI leaders to move beyond basic KYC and focus on the operational integrity of their digital partners. Execution now involves ensuring that every lead generated, every loan originated, and every collection effort follows the specific guidelines set by these new bodies.

To maintain compliance in this evolving landscape, lenders need technology that can adapt to changing codes of conduct in real-time. Toolyt helps banks and NBFCs manage these complexities by providing a field force productivity and lead management platform that integrates compliance-ready workflows directly into the field execution process, ensuring that fintech partnerships remain transparent and audit-ready.

Effective execution now depends on the ability to translate SRO guidelines into automated, enforceable digital workflows.

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