The Reserve Bank of India (RBI) has said it may consider relaxing, if warranted, some of the regulatory requirements for applicants for the duration of the regulatory sandbox on a case-to-case basis.
Regulatory sandbox is an infrastructure that helps financial technology (FinTech) players live test their products or solutions, before getting the necessary regulatory approvals for a mass launch, saving start-ups time and cost. In its final ‘Enabling Framework for Regulatory Sandbox’, RBI said the examples of regulatory relaxation which may be granted are: liquidity requirements, board composition, management experience, financial soundness and track record.
However, it added that the requirements that should mandatorily be complied with by the applicants are: customer privacy and data protection, secure storage of and access to payment data of stakeholders, security of transactions, KYC/AML/CFT requirements and statutory restrictions.
The banking regulator said the entity should have a minimum net worth of Rs 25 lakh as per its latest audited balance sheet. The promoters/ directors of the entity should be fit and proper and the conduct of the bank accounts of the entity as well its promoters/directors should be satisfactory.
The RBI added the proposed FinTech solution should highlight an existing gap in the financial ecosystem and the proposal should demonstrate how it would address the problem, and bring benefits to consumers or the industry and/or perform the same work more efficiently. “Alternatively, the applicants should demonstrate that there is a relevant regulatory barrier that prevents deployment of the product/service at scale, or a genuinely innovative and significantly important product/service/solution is proposed for which relevant regulation is necessary but absent,” it said.
The test scenarios and expected outcomes of the RS experimentation should be clearly defined, and the sandbox entity should report to the RBI on the test progress, based on an agreed schedule, it said. The appropriate boundary conditions should be clearly defined for the RS to be meaningfully executed while sufficiently protecting consumers’ privacy, the RBI said.
The target applicants for entry to the RS, are FinTech companies including startups, banks, financial institutions and any other company partnering with or providing support to financial services businesses, subject to the sandbox criteria laid down in these guidelines, the RBI said. The focus of the RS will be to encourage innovations intended for use in the Indian market. “The entities may not be suitable for the RS if the proposed financial service is similar to those that are already being offered in India unless the applicants can show that either a different technology is being gainfully applied or the same technology is being applied in a more efficient and effective manner,” the RBI said.
According to the RBI, an indicative negative list of products, services and technology which may not be accepted for testing are credit registry, credit information, crypto currency/crypto assets services, trading/investing /settling in crypto assets, etc.