- 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.