The Reserve Bank of India (RBI) has released a draft ‘Enabling Framework for Regulatory Sandbox’ as a facility to support fintechs in the country. The sandbox is expected to begin the testing process with 10-12 selected entities focusing on financial inclusion, payments and lending, digital KYC, etc. The RBI said cohorts may run for varying time periods but should ordinarily be completed within 6 months.
Regulatory sandbox allows startups to do experiments with their proposed solutions in a closely-monitored ecosystem and ensure that risks in case of failure do not spread outside it and the reasons for failure can be analyzed. There can also be regulatory relaxations for the limited purpose of the testing. RBI said the sandbox would be within a well-defined space and duration where the RBI will provide the requisite regulatory guidance, so as to increase efficiency, manage risks, and create new opportunities for consumers.
Earlier RBI governor Shaktikanta Das had announced the central bank’s intention of framing guidelines for creating a regulatory sandbox stating a working group on fintech and digital banking set up by the central bank had suggested the introduction of a ‘regulatory sandbox/innovation hub’ within a well-defined space and duration to experiment with fintech solutions, where the consequences of failure can be contained and reasons for failure analyzed.
Das said the sandbox will be of great benefit to the fintech companies in the country, especially since it can facilitate reduced time to launch innovative products at a lower cost. He said the 2 main areas that required attention as far as fintechs in the country are concerned are how to improve the accessibility of financial platforms using fintech, and analysis of potential risks that may arise out of fintech adoption.
The draft guidelines highlight the clear principles and role of the proposed regulatory sandbox, its pros and cons, the reasons for setting up the regulatory sandbox and expectations of the RBI from the sandbox. The central bank has invited comments on the draft guidelines from stakeholders by 8 May.
Fintech firms which meet the eligibility conditions prescribed for startups by the government are entitled to apply for entry into the regulatory sandbox. The entity also needs to have a minimum net worth of Rs 50 lakh.
The focus of the regulatory sandbox will be to encourage innovations where there is absence of governing regulations or a need to temporarily ease regulations for enabling the proposed innovation or the proposed innovation shows promise of easing/effecting delivery of financial services in a significant way.
