Final Norms For Regulatory Sandbox Put In Place By RBI

The Reserve Bank of India (RBI), earlier this month, issued a final framework to cosolidate a regulatory sandbox. The framework was released post taking feedback from around 69 stakeholders, which included fintech entities, banks, multilateral agencies, industry associations, payment aggregators, audit and legal firms, government departments and individuals. Further, the suggestions pertaining to same which appeared in 17 newspapers were also considered by the RBI. On  April 18, RBI, had released a draft titled Enabling Framework for Regulatory Sandbox with a view to provide solutions in the space of rapidly evolving fintech companies.  

The RBI had also set-up a Working Group (WG), to look into the various aspects of fintech and its implications in July 2016. A regulatory sandbox (RS) provides a live testing of new products or services in a controlled or test regulatory environment for which regulators may (or may not) permit certain regulatory relaxations for the limited purpose of the testing. “The RS allows the regulator, the innovators, the financial service providers (as potential deployers of the technology) and the customers (as final users) to conduct field tests to collect evidence on the benefits and risks of new financial innovations, while carefully monitoring and containing their risks,” stated the RBI’s final framework. This step towards innovative technology in the financial sector would provide a structured avenue for the regulator to engage with the ecosystem and to create a healthy space for innovators, with low-cost financial products. 

The RBI had also pointed out certain risks where innovators may lose some flexibility and time in going through the sandbox process. However, RS can mitigate this risk by running in a time-bound manner at each stage. That said, the applicants of RS which includes fintech companies like startups, banks, financial institutions may also exit from the RS at their own discretion by informing the RBI one month in advance. RBI also said that it will provide the appropriate regulatory support by relaxing specific regulatory requirements whenever necessary, for the duration of the RS. “The RBI shall bear no liability arising from sandbox process and any liability arising from the experiment will be borne by the applicant as a sandbox entity,” stated the framework.