Money Basics: RBI to set up regulatory sandbox

Recently, the Reserve Bank of India (RBI) governor Shaktikanta Das said that the central bank will set up a regulatory sandbox, for which guidelines will be issued in the next two months.

The objective is to have appropriate regulatory and supervisory frameworks to ensure an orderly development of fintech, to streamline their influence into the financial system, to protect the customers and to safeguard the interest of all the stakeholders.

The central bank’s working group on fintech and digital banking suggested the introduction of a ‘regulatory sandbox or innovation hub’ within a well-defined space and duration to experiment with fintech solutions, where the consequences of failure can be contained and reasons for failure analysed. He noted that a regulatory sandbox would benefit fintech companies by way of reduced time to launch innovative products at a lower cost.

The process

There are number of sandbox model globally. “London and Singapore comes to be the closest. As far as for India, the sandbox model is for the regulator. It means that if I am a financial services company such as a fintech or a bank and I want to and I want to test out a product or process I can do through this. For instance, I want to do digital onboarding and use video and other option to check the authentic instead of in-person verification. And I want to check with the regulator if this model will be acceptable then sandbox is the place where I will show this method. It could also be a product idea. Say there is a certain way I do product distribution today and I want to experiment with a different method, I should be able to do it,” said Vivek Belgavi, partner and leader, fintech at PwC India.

Impact on you

Sandbox is an experiment space. It does two things—gives a sense to the regulator on where changes are required and wherever change is required it can be implemented. “It is a place where an experiment can be done. The RBI’s purpose is regulation and sandbox can be expected to be used for regulation,” said Belgavi.

RBI is not the first one to consider regulatory sandbox. In fact the Insurance Regulatory and Development Authority of India (IRDAI) has also considered allowing companies to test products as part of its regulatory sandbox approach to test new digital and tech-based innovations before launching them in the market.

The regulatory sandbox will aid in innovation and new product development which can then be of use for consumers as well.

First Published: Apr 02, 2019 10:58 IST