Reserve Bank of India (RBI) releases a comprehensive framework for a Regulatory Sandbox (RS) | Current Affairs | Vision IAS
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    Reserve Bank of India (RBI) releases a comprehensive framework for a Regulatory Sandbox (RS)

    Posted 29 Feb 2024

    2 min read

    • An inter-regulatory working group setup by RBI recommended the introduction of framework for a RS for FinTech sector.
    • RS refers to live testing of new products or services in a controlled/test regulatory environment for which regulators may permit certain regulatory relaxations for testing.
      • It allows field testing of new financial innovations to collect evidence on benefits and risks of new financial innovations. 

     

    • Benefits of RS:
      • Facilitates empirical learning, shaping informed regulatory changes.
      • Testing of product viability, enabling modifications before broader launch, thus reducing risks.
      • Accelerates financial inclusion through innovations in microfinance, small savings, and digital banking.
      • Evidence based decision-making reduces regulator dependence on industry consultations.

     

    • Risks and Limitations:
      • Possible loss of flexibility and time of innovators in the sandbox process.
      • Case-by-case authorizations and relaxations can involve discretional judgements
      • Legal waivers cannot be provided by the RBI or its RS.
      • Post-sandbox testing may require regulatory approvals for wider application.

     

    • Key design aspects of RS:
      • RS cohorts: Based on thematic cohorts focussing on financial inclusion, payments and lending, digital KYC, etc.
      • Regulatory relaxations: RBI may grant some relaxations such as liquidity requirements, board composition, statutory restrictions etc.
      • Exclusion from RS: Indicative negative list includes credit registry, crypto currency, initial coin offerings etc. 
    • Tags :
    • FinTech sector
    • Regulatory Sandbox
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