RBI published the final enabling framework for the regulatory sandbox in India, post a consultation from April 18, 2019 to May 08, 2019. According to RBI, the objective of the regulatory sandbox is to foster responsible innovation in financial services, promote efficiency, and bring benefit to consumers. The regulatory sandbox is, at its core, a formal regulatory program for market participants to test new products, services, or business models with customers in a live environment, subject to certain safeguards and oversight. The proposed financial services to be launched under the regulatory sandbox should include new or emerging technology, or use of existing technology in an innovative way and should address a problem and bring benefits to consumers.
Innovators may lose some flexibility and time in going through the sandbox process. However, running the regulatory sandbox in a time-bound manner at each stage can mitigate this risk. Post sandbox testing, a successful experimenter may still require regulatory approvals before the product or services or technology can be permitted for wider application. The target applicants for entry to the regulatory sandbox are fintech companies including startups, banks, financial institutions, and any other company partnering with or providing support to financial services businesses, subject to the sandbox criteria laid down in these guidelines. The focus of the regulatory sandbox will be to encourage innovations intended for use in the Indian market in areas where there is absence of governing regulations, where there is a need to temporarily ease regulations for enabling the proposed innovation, and where the proposed innovation shows promise of easing or effecting delivery of financial services in a significant way.
A detailed end-to-end sandbox process, including the testing of the products or innovations by fintech entities, shall be overseen by the FinTech Unit, also known as FTU, under overall guidance of the Inter Departmental Group of RBI, with participation of domain experts. Each cohort of the regulatory sandbox shall have the following five stages and timeline:
- Preliminary Screening. This phase may last for four weeks from the closure of application window. The applications shall be received by the FinTech Unit and evaluated to shortlist applicants meeting the eligibility criteria.
- Test Design. This phase may last for four weeks. The FinTech Unit shall finalize the test design through an iterative engagement with the applicants and identify outcome metrics for evaluating evidence of benefits and risks.
- Application Assessment. This phase may last for three weeks. The FinTech Unit shall vet the test design and propose regulatory modifications, if any.
- Testing. This phase may last for a maximum of 12 weeks. The FinTech Unit shall generate empirical evidence to assess the tests by close monitoring.
- Evaluation. This phase may last for four weeks. The final outcome of the testing of products or services or technology as per the expected parameters including viability or acceptability under the regulatory sandbox shall be confirmed by RBI. The FinTech Unit shall assess the outcome reports on the test and decide on whether the product or service is viable and acceptable under the regulatory sandbox.
During the consultation period, RBI had received 381 para-wise comments from 69 stakeholders, including fintech entities, banks, multilateral agencies, industry associations, payment aggregators, audit and legal firms, government departments, and individuals, on the various aspects of the framework. The comments mainly concerned the sandbox objectives, eligibility criteria, fit and proper criteria for participants, list of exclusions, legal and regulatory waiver, consumer protection, and transparency and disclosure. RBI has also considered the suggestions appearing in 17 newspaper reports. The received suggestions were suitably incorporated into the final framework for regulatory sandbox.
Keywords: Asia Pacific, India, Banking, Regulatory Sandbox, Fintech, Technology, Regtech, RBI
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