Regulatory sandbox: RBI eases net worth, regulatory norms

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Published: August 14, 2019 3:11:46 AM

A regulatory sandbox usually refers to live testing of new products or services in a controlled/test regulatory environment, for which regulators may or may not permit certain regulatory relaxations for the limited purpose of the testing.

In April this year, the central bank had released draft guidelines for a regulatory sandbox for fintechs. The final guidelines take into account feedback received from multiple stakeholders. In April this year, the central bank had released draft guidelines for a regulatory sandbox for fintechs. The final guidelines take into account feedback received from multiple stakeholders.

In its final guidelines for a regulatory sandbox (RS) for fintech firms, the Reserve Bank of India (RBI) relaxed the minimum net worth requirement for applicants to Rs 25 lakh from Rs 50 lakh earlier, while also specifying that it would ease regulatory requirements with respect to liquidity, board composition, management experience, financial soundness and track record. In addition, it declared banks and financial institutions constituted under a statute in India as eligible to apply.

A regulatory sandbox usually refers to live testing of new products or services in a controlled/test regulatory environment, for which regulators may or may not permit certain regulatory relaxations for the limited purpose of the testing.

In April this year, the central bank had released draft guidelines for a regulatory sandbox for fintechs. The final guidelines take into account feedback received from multiple stakeholders. The RBI said that it received a total of 381 para-wise comments and feedback from 69 stakeholders, including fintech entities, banks, multilateral agencies, industry associations, payment aggregators, audit and legal firms, government departments and individuals on the various aspects of the framework. “The suggestions appearing in 17 newspaper reports were also considered,” the RBI said in a statement.

Further, the regulator has increased the notice period for a fintech to exit the RS to one month from one week earlier. Sandbox entities shall be required to take liability or indemnity insurance of an adequate amount and period to safeguard the interest of the customers.

“The adequacy of indemnity cover shall depend on determination of the maximum liability based on, among others, (i) maximum exposure to a single customer (ii) the number of claims that could arise from a single event (potential for multiple claims); and (iii) number of claims that might be expected during the policy period,” the RBI said. The policy cover shall begin with the start of testing stage and end three months after exit of the sandbox entity from the RS.

The RS shall be based on thematic cohorts focusing on financial inclusion, payments and lending, and digital KYC, among other things. The cohorts may run for varying time periods but should ordinarily be completed within six months, the RBI has said. The indicative list of products, services and technologies where the RS could be applicable includes retail payments, money transfer services, marketplace lending, mobile technology applications, data analytics and application program interface (API) services.

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