The formation of a 5-member high-level committee by the Reserve Bank of India with Nandan Nilekani (former Chief of UIDAI–Unique Identification Authority of India) as its Chairman for materialising advancements in the FinTech domain has received major attention. Since the core of attention of this committee is to augment the digital payments’ provision in rural as well as urban areas, the initial deployment of the required point-of-sale (PoS) infrastructure in India is vital. The promise of FinTech development in India will only be fulfilled if the allied infrastructure in the ecosystem develops simultaneously.
The Reserve Bank of India’s (RBI) draft ‘Enabling Framework for Regulatory Sandbox’ offering an interface for testing scalability of financial technology (FinTech) based products or services proposed by companies, is an enabling infrastructure for innovators of tomorrow.
The Sandbox Process & the Stages in a Regulatory Sandbox
First and foremost, it’s the FinTech Unit (FTU) at the Reserve Bank of India (RBI) that supervises the end-to-end Sandbox Process. This exercise also involves supervising the testing of the products and/or innovations proposed by FinTech entities.
The Reserve Bank of India’s draft regulatory sandbox (RS) for FinTech companies–the “Enabling Framework for Regulatory Sandbox,”–got released in April 2019 to ease for FinTech firms assessing the market capacity and efficiency of their proposed innovative products and services under a (timed) relaxed regulatory compliances regime. The RS is intended to act as a forum for regulator, the innovators, the financial service providers (deploying the technology), and the customers (as intended beneficiaries) to test the practicalities of their respective interests surrounding the products and services.
The Reserve Bank of India presented its proposal to commence a regulatory sandbox (RS) for FinTech companies on 18 April 2019. The draft named, “Enabling Framework for Regulatory Sandbox,” is meant to facilitate for FinTech firms a platform to test their products and services (gauging the efficacy and practical use cases) with ease in the market–with no attraction of the (otherwise mandatory) regulatory compliances. The RS will bring together the regulator, the innovators, the financial service providers (deploying the technology) and the customers (as intended beneficiaries) to do practice tests for amassing evidence on the advantages and risks of new financial innovations–simultaneously monitoring and managing the arising risks.
The Principles of a Regulatory Sandbox
A regulatory sandbox (a closed testing environment) is a framework giving innovators a platform to test business ideas and products with regulatory supervision—not attracting fines. A regulatory sandbox is simply a controlled framework setup by financial regulators or supervisors to facilitate dynamic and evidenced regulatory environments which learn and develop with emerging technologies. A regulatory sandbox is a frequently used term in the global FinTech universe. In the financial industry, the regulatory sandbox terminology relates to a mechanism for developing regulation that matches the dynamic pace of innovation.