Regulatory Sandbox – Burning Issues

Table of Contents

WHAT IS REGULATORY SANDBOX?

It is a framework that allows for live-testing of new products or services in a controlled environment.
For this regulators may (or may not) permit certain regulatory relaxations for the limited purpose of the testing.
It can provide a structured avenue for the regulator to engage with the ecosystem and to develop innovation that facilitate delivery of relevant, low-cost financial products.
The RS allows the regulator, the innovators, the financial service providers 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.

The proposed financial service to be launched under the RS should include
New or emerging technology, or use of existing technology in an innovative way
And should address a problem, or bring benefits to consumers.

Regulators obtain first-hand empirical evidence on the benefits and risks of emerging technologies and their implications.
Innovators and FinTech companies can improve their understanding of regulations that govern their offerings and shape their products accordingly.
If any concerns arise, during the sandbox period, appropriate modifications can be made before the product is launched in the broader market.
FinTechs provide solutions that can further financial inclusion in a significant way.
The RS could lead to better outcomes for consumers through an increased range of products and services, reduced costs

Innovators may lose some flexibility and time in going through the RS process.
Case-by-case bespoke authorizations and regulatory relaxations can involve time and discretional judgements.
The RBI or its RS cannot provide any legal waivers.
Successful experimenter may still require regulatory approvals before it can be permitted for wider application.

The focus of the RS will be to encourage innovations where-
There is absence of governing regulations;
There is a need to temporarily ease regulations for enabling the proposed innovation;
The proposed innovation shows promise of easing/effecting delivery of financial services in a significant way.

According to NITI Aayog, India is one of the fastest growing fintech markets globally, and industry research has projected that $1 trillion will be digitally disbursed by 2029.
The Indian fintech ecosystem is the 3rd largest in the world, attracting nearly $6 billion in investments since 2014.