Unboxing The ‘Regulatory Sandbox'

Author:Mr Sanjay Khan Nagra, Prashanth Ramdas and Anurag Singh
Profession:Khaitan & Co


In the recent past, the adoption of technology has caused significant disruption in financial services sector and the financial ecosystem as a whole. New age Indian companies are developing various technological solutions to address existing gaps in the financial market including access to credit, adoption of digital payments, sale of financial products on e-commerce platforms, etc. With a view to encourage and support adoption of such technological solutions in a structured manner, three Indian financial services regulators, Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and Insurance Regulatory and Development Authority of India (IRDA) have proposed establishment of their respective regulatory sandboxes, which are controlled environments for live testing of new products, processes, or services for which appropriate regulatory relaxations could be considered by the regulators.

The Pension Fund Regulatory and Development Authority had also released the final report of its constituted group on regulatory sandbox, and may issue draft regulations in the near future. The proposals from various regulators on regulatory sandboxes are pursuant to the recommendations made by the inter-regulatory working group on fintech and digital payments set up by the RBI in July 2016. Regulatory sandboxes are intended to encourage innovative use of emerging technology which could potentially benefit Indian consumers, and result in deepening penetration of financial services in India.

Key proposals

The table below outlines the key aspects of regulatory sandboxes proposed to be introduced by RBI, SEBI, and IRDA.

PARTICULARS RBI SEBI IRDA Type of fintech solutions Innovations in retail payments, digital know-your-customer (KYC) solutions, cyber security products, data analytics, applications under blockchain technologies, microfinance, innovative small savings, remittances, mobile banking, and artificial intelligence are permitted for sandbox testing Fintech solutions relating to credit registry, credit information, cryptocurrency, crypto asset services, initial coin offerings, and chain marketing services will not be accepted for testing Innovations which provide identifiable benefits to the securities market, and result in increased financial inclusion, especially in tier 2 and 3 cities and rural areas Solutions should be beneficial to investors, capital raising entities, and Indian capital market and economy...

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