Background on Regulatory Sandbox (RS)
The Reserve Bank of India (RBI) updated its “Enabling Framework for Regulatory Sandbox” on February 28, 2024. The Regulatory Sandbox allows fintech companies to test new products and services in a controlled environment. This update builds on experiences from four cohorts conducted over the past 4.5 years and incorporates feedback from fintech companies, banking partners, and other stakeholders.
Key Updates to the Framework
- Extended Timelines:
- The total duration for the Regulatory Sandbox process has been extended from 7 to 9 months to allow adequate time for testing, excluding the preliminary screening period.
- Data Protection Compliance:
- Compliance with the Digital Personal Data Protection Act, 2023, is now mandatory. Sandbox participants are required to implement necessary technical and organizational measures to adhere to data protection rules effectively.
- Partnership Arrangements:
- Applicants can now include potential partnership arrangements with stakeholders in their initial sandbox application, facilitating broader collaboration and integration.
- Test Design and Integration:
- An additional phase titled “formulation of test design and integration” has been introduced. During this phase, the RBI’s fintech department will finalize the test designs and set metrics for assessing the proposed innovation within 45 days.
- User Consent:
- The framework now requires obtaining user consent in a language understood by the customer, as opposed to the previous requirement of the local language, enhancing clarity and comprehension for users.
- Theme Neutral Cohorts:
- The updated framework permits “theme neutral cohorts,” meaning that fintech entities can apply to test any innovative product, service, or technology across various functions within the RBI’s regulatory domain.
- Eligibility Criteria:
- Products or services similar to those previously tested in the RS that do not introduce new innovations are not eligible for testing under the updated sandbox guidelines.
Overview of Regulatory Sandbox
- Establishment: Launched on August 13, 2019, following recommendations by the Financial Stability and Development Council’s Sub-Committee (FSDC-SC).
- Purpose: To conduct live field tests of new financial products or services to evaluate their benefits and risks within a test regulatory framework.
Additional Historical Context
- Fintech Regulatory Review: An inter-regulatory working group was established in 2016 to examine the fintech framework, leading to the initial unveiling of the Regulatory Sandbox framework in 2019.
This enhanced framework aims to foster more robust innovation within the fintech sector by providing clearer guidelines and extended support structures, thereby promoting advanced technological integration and consumer protection in India’s digital finance landscape.
Login with Google