On August 19, the Reserve Bank of India (RBI) unveiled a new framework aimed at recognizing Self-Regulatory Organizations (SROs) in the financial markets. This initiative is designed to bolster compliance culture and create a consultative platform for policy-making.
Key Responsibilities of SROs
- Development of Standards: SROs are tasked with framing necessary best practices, standards, and codes for voluntary adoption by their members. These frameworks, however, are supplementary and not a replacement for the RBI’s regulatory framework.
- Sector Improvement: SROs must contribute to the enhancement of the sectors they represent by addressing critical industry issues. They are responsible for setting minimum standards and establishing conventions for professional market conduct.
- Collaboration with RBI: SROs are expected to work closely with the RBI to improve compliance with regulatory guidelines. They should also be proactive in detecting early warning signals and addressing emerging concerns.
RBI’s Authority and Oversight
The RBI retains the authority to revoke the recognition of an SRO if it finds that the organization’s operations are detrimental to the public interest or if the SRO engages in activities that contradict its stated objectives.
Multiple-Choice Questions (MCQs):
1. What is the primary purpose of the RBI’s new framework for Self-Regulatory Organizations (SROs)?
A) To replace the RBI’s regulatory framework
B) To enhance compliance culture and provide a consultative platform for policy-making
C) To eliminate the need for regulatory guidelines
D) To centralize financial market operations
Answer: B) To enhance compliance culture and provide a consultative platform for policy-making
2. What are Self-Regulatory Organizations (SROs) responsible for according to the new framework?
A) Creating new financial products
B) Setting minimum standards and establishing conventions for professional market conduct
C) Controlling monetary policy
D) Revoking other SROs’ recognition
Answer: B) Setting minimum standards and establishing conventions for professional market conduct
3. How will SROs collaborate with the RBI?
A) By developing new monetary policies
B) By improving compliance with regulatory guidelines and detecting early warning signals
C) By taking over regulatory functions
D) By limiting their own scope of work
Answer: B) By improving compliance with regulatory guidelines and detecting early warning signals
4. Under what conditions can the RBI revoke the recognition of an SRO?
A) If the SRO fails to generate profits
B) If the SRO’s operations harm the public interest or are inconsistent with its stated objectives
C) If the SRO’s members do not follow best practices
D) If the SRO does not meet financial targets
Answer: B) If the SRO’s operations harm the public interest or are inconsistent with its stated objectives