Reserve Bank of India (RBI) has been actively working to develop the financial sector, introducing frameworks to ensure transparency, efficiency, and compliance. One such initiative is the introduction of the regulatory framework for Non-Banking Financial Company-Account Aggregators (NBFC-AAs) on September 2, 2016. NBFC-AAs play a pivotal role in the financial services ecosystem by retrieving and aggregating financial data from various Financial Information Providers (FIPs) such as banks, insurers, and pension funds, under the oversight of relevant financial sector regulators. These aggregated details are then presented to Financial Information Users (FI-Us), such as financial service providers and customers themselves, thereby enabling informed decision-making.
Complexity of the AA Ecosystem
The Account Aggregator (AA) ecosystem is inherently complex, involving multiple stakeholders with diverse regulatory obligations. The NBFC-AAs, FIPs, and FI-Us, who directly manage and transfer customer financial information, are at the heart of the ecosystem. Each participant is governed by regulations set by various financial sector regulators, including the RBI, SEBI, IRDAI, and the Pension Fund Regulatory and Development Authority (PFRDA). With a growing number of participants and increased transactions, operational issues have emerged that require ongoing attention and resolution.
In recognition of this complexity and the need for smooth functioning, the RBI proposed the introduction of a Self-Regulatory Organization (SRO) for the AA ecosystem. This initiative is aimed at maintaining a balance between regulatory oversight and the need for innovation and market-based solutions.
The Role and Objectives of the SRO-AA
The concept of an SRO for the AA ecosystem is aimed at ensuring effective governance, enhanced transparency, and a culture of compliance within the ecosystem. The SRO-AA will operate under the overall oversight of the RBI, ensuring that the AA ecosystem develops in a healthy and sustainable manner.
The key objectives of the SRO-AA include:
Representation and Inclusivity: The SRO-AA is tasked with representing the diverse stakeholders in the ecosystem, including NBFC-AAs, FIPs, and FI-Us. By fostering inclusivity, the SRO-AA can draw upon collective expertise to develop rules that benefit all participants.
Ethical Standards and Oversight: The SRO-AA will create a code of conduct and governance framework to ensure that participants in the ecosystem operate ethically and in compliance with relevant laws and regulations. Strong oversight mechanisms will be implemented to monitor compliance with these standards.
Development of the Ecosystem: A development-focused approach is essential to fostering innovation while ensuring that technical requirements are met. The SRO-AA will provide expert guidance and capacity-building initiatives to help members adopt and implement the evolving technical aspects of the AA ecosystem.
Independence and Impartiality: The SRO-AA must function independently, without undue influence from any single participant or group, to ensure credibility and impartial decision-making.
Dispute Resolution and Grievance Handling: A transparent and consistent dispute resolution mechanism will be established to handle any grievances that may arise among participants, ensuring that the ecosystem operates smoothly.
Governance and Management of the SRO-AA
For the SRO-AA to function effectively, it must be governed by a board that ensures professionalism and independence. The governance structure should include independent directors, and the board should work to foster good governance practices, ensuring that the SRO-AA operates in a transparent and efficient manner.
To ensure accountability, the SRO-AA must adhere to the standards set forth in the Companies Act of 2013, which mandates transparency, fairness, and professionalism. It is crucial that the board members and key executives possess the necessary expertise and have a good reputation for integrity and fairness.
Membership of the SRO-AA
The membership of the SRO-AA is voluntary, but all participants in the AA ecosystem, including NBFC-AAs, FIPs, and FI-Us, are encouraged to join. Membership criteria are designed to ensure broad representation from different segments of the ecosystem, with at least 25 unique entities from FIPs and FI-Us. The SRO-AA should ensure that the membership fees are reasonable and non-discriminatory, reflecting the diversity of its members.
The AA ecosystem is distinct in its complexity, involving exchange of data among a diverse array of Regulated Entities (REs) operating under varied regulatory environments. This complexity necessitates frequent coordination among these REs to address various operational issues such as dispute resolution, standardized agreements, common services, etc. Given its inherent diversity and to support its smoother adoption and stabilisation, it is desirable to have a dedicated Self-Regulatory Organisation for the Account Aggregator ecosystem (SRO-AA).
