On April 18, 2019, the RBI announced the Draft Enabling Framework for Regulatory Sandbox (“Proposed Framework”),
detailing the proposed features of the sandbox. The Proposed Framework
is a draft for public comments, and is not effective yet.
The Indian fintech sector has witnessed exponential
growth and, by some accounts, is presently the world's second largest
fintech hub with more than 2,000 entities operating in this sector.1
While the term “fintech” has emerged from a combination of the words
“finance” and “technology”, there is no universal consensus on what
innovations fall under the “fintech” umbrella. Some of the major
products and services that are now synonymous with fintech innovations
include the digital payments ecosystem, peer-to-peer lending platforms,
crowd-funding, crypto-assets and blockchain technology, distributed
ledgers technology, Big Data, smart contracts, robo-advisors and
aggregators.
However, as traditional law and policy development
is slow to catch up with the rapid pace of technological innovation,
innovators look towards regulators to develop new approaches to support
this rapid speed of growth.
In view of the growing significance of fintech innovations,2 the RBI set up an inter-regulatory ‘Working Group on FinTech and Digital Banking’ in July 20163
to study the regulatory responses to such innovations across the globe.
The Group included representatives from the RBI, Securities Exchange
Board of India (“SEBI”), Insurance Regulatory and Development Authority of India (“IRDAI”), and Pension Fund Regulatory and Development Authority (“PFRDA”), select financial entities regulated by these agencies, rating agencies and fintech consultants and companies.
On February 08, 2018, this Working Group released
its report, which, among other things, recommended the formulation of an
appropriate framework for a regulatory sandbox. The Working Group noted
that sandboxes offered benefits including limited testing which would
answer questions, before the product is made available more broadly, on
the product’s concerns as well as its potential for success. It observed
that the objective of a sandbox should be “to encourage more fintech
experimentation within a well-defined space and duration where
regulators will provide the requisite regulatory support, so as to
increase efficiency, manage risks better and create new opportunities
for consumers.”
