RBI has released the final framework for Regulatory Sandbox on 13th August, 2019. RBI had earlier placed the draft ‘Enabling Framework for Regulatory Sandbox’ on its website on April 18, 2019 inviting stakeholders to offer their comments/feedback. Following the incorporation of all amendments and comments suggested by the stake holders, the final framework has been released.
REGULATORY SANDBOX (“RS”)
A Regulatory Sandbox is a controlled environment for live testing of new technology with limited Regulations and customer exposure. In Regulatory Sandbox, the regulator, the innovators, the financial service providers and the customers, conduct field tests to collect evidence on the benefits and risks of new financial innovations.
BENEFITS:
Regulatory Sandbox has several benefits.
- Regulatory Sandbox is a standardized and publicized frame-work that deals with innovations that promote open and transparent communication between regulator and the sandbox entities to facilitate learning from each other.
- A clear signal to the market and among the regulatory and supervisory staff that innovation is on the regulator’s agenda.
- A safe space where live experiments can be conducted in a controlled manner and with safeguards in place to contain any potential harm to customers and the financial system as a whole.
- Potential for reduced time-to-market cycle by streamlining the authorization process and reducing uncertainty for market players.
An Indicative list of innovative products/ services/ technology which could be consider for testing under Regulatory Sandbox are as follows:
Innovative Products/Services
- Retail payments
- Money transfer services
- Marketplace lending
- Digital KYC
- Financial advisory services
- Wealth management services
- Digital identification services
- Smart contracts
- Financial inclusion products
- Cyber security products
Innovative Technology
- Mobile technology applications (payments, digital identity, etc.)
- Data Analytics
- Application Program Interface (APIs) services
- Applications under block chain technologies
- Artificial Intelligence and Machine Learning application
MANDATORY REGULATORY REQUIREMENTS
Emphasis on consumer protection has been given. Sandbox entities will be required to ensure that any existing obligations to the customers of the financial service under experimentation are fulfilled or addressed before exiting or discontinuing the Regulatory Sandbox. They must also notify the customers in a transparent way of all the potential risks involved and obtain their explicit consent in this regard. Also, the customers would be provided appropriate means to exit from the test. Sandbox entities shall be required to take liability/indemnity insurance of an adequate amount and period to safeguard the interest of the customers. The policy cover shall begin with the start of testing stage and end three months after exit of the sandbox entity from the Regulatory Sandbox and shall depend on determination of the maximum liability.
RELAXATIONS FOR APPLICANTS:
The RBI may consider relaxing, if warranted, some of the regulatory requirements for applicants for the duration of the Regulatory Ssandbox on a case-to-case basis. A few of the examples of regulatory relaxation which may be granted are given below:
- Liquidity requirements
- Board composition
- Management experience
- Financial soundness
- Track record
Click here to read Framework.
