Fintechs to Setup Regulatory Sandbox, RBI Waves Green
The RBI gave permissions to startups, banks, and financial institutions to set up a regulatory sandbox (RS) for live testing of innovative products in areas like retail payments, digital KYC and wealth management.
RS usually refers to live to test of latest products or services in a very controlled/test regulatory atmosphere that regulators might (or might not) allow certain relaxations for the restricted purpose of the testing. The RS permits the regulator, innovators, financial service providers, and customers to conduct field tests to gather proof on the advantages and risks of latest financial innovations, while rigorously watching and containing their risks.
Releasing the 'enabling framework for regulatory sandbox', the RBI said the RS fosters 'learning by doing' on all sides and regulators acquire first-hand empirical proof on the advantages and risks of rising technologies and their implications.
This will alter authorities to take an idea of view on the regulatory changes or new rules which can be required to support helpful innovation while containing the attendant risks.
Users of an RS will check the product's viability without the necessity for a bigger and costlier roll-out, if the product seems to have the potential to be successful, is another major advantage of such exercise.
On risks and limitations of RS, the RBI said innovators might lose some flexibility and time in researching the sandbox process. However, running the RS in a very time-bound manner at every stage will mitigate this risk.
"The target applicants for entry to the RS, are fintech firms including startups, banks, financial establishments, and other companies partnering with or providing support to financial services businesses.", the RBI said on eligibility criteria for RS.
The focus of the RS is to encourage innovations supposed to use in the Indian market in areas wherever governing rules are absent and there's a necessity to temporarily ease rules for enabling the proposed innovation.
"The RS might run a couple of cohorts (end-to-end sandbox process), with a limited range of entities in every cohort testing their product throughout a stipulated period.
"The RS shall be based on thematic cohorts focusing on financial inclusion, payments, lending, and digital KYC. The cohorts might run for variable periods however ought to normally be completed within six months," the central bank said.
Further details in respect of the cohorts and also the window for submission of applications would be declared later, it added.
Innovative products/services that can be thought of for RS, include retail payments, money transfer services, marketplace lending, digital KYC, financial advisory services, wealth management services, and digital identification services.
The RBI, besides, said that mobile technology applications, data analytics, application program interface (APIs) services, applications underneath blockchain technologies, AI and machine learning applications too can be considered for testing beneath RS.
The guidelines additionally said, the sandbox entity is going to be needed to make sure that any existing obligations to the customers of the monetary service beneath experimentation are fulfilled or self-addressed before exiting or discontinuing the RS.