India’s financial sector regulators should stop hindering ideas in the financial technology sector and instead opt for a regulatory sandbox approach to nurture innovative financial technology applications, Niti Aayog CEO Amitabh Kant said on Friday.
“It is very important that we allow technology to move forward and the regulators don’t become restrictors, which very often they do, but become facilitators and creators,” Mr. Kant said, stressing that the role of India’s regulators needed to evolve as they often became restrictors of growth.
A regulatory sandbox is an experimental oversight mechanism for innovative products and services that do not fall into an existing regulatory regime or cut across traditional regulators’ domains. Such innovations are permitted to operate for a limited period of time at a limited scale to understand its efficacy and implications, so that the best alternatives for regulation can be evolved based on concerns that emerge.
‘Consumer-centric lens’
“The sandbox needs to be designed to adopt this unified consumer-centric lens through a single integrated sandbox, serving all four financial sector regulators… technology will always be ahead of regulation,” said Mr. Kant, speaking at a CII event on making India a global fintech hub.
He was referring to the Reserve Bank of India (RBI), the Securities Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA).
“The (sandbox) option can be a great way to unlock innovations for mass public adoption, because a regulatory sandbox balances the twin objectives of nurturing financial innovation and safeguarding consumer interests,” the Niti Aayog CEO said.
Stressing that there are over 600 start-ups in the country in the financial technology (fintech) space, Mr. Kant said that letting them operate in a ‘live, but controlled environment with some regulations relaxed… will provide a solid evidence base’ on their strengths and weaknesses.
More than 30 of those start-ups are focused on the peer-to-peer lending space alone and their market potential is expected to reach $5 billion by 2020. Several start-ups are working in areas such as virtual currencies like Bitcoins, Blockchain-based settlements and so on. The total fintech market in India is estimated to be worth $8 billion and is expected to grow to about $14 billion by 2020.
“With more than $17 billion funding and over 1,400 deals in 2016, FinTech is one of the most promising sectors globally. With nearly $270 million funding in 2016, India is ranked amongst the top ten FinTech markets globally,” said a CII-Deloitte report on the subject released on Friday.
Globally, regulatory sandboxes have been introduced in the U.K., Singapore, Australia, Malaysia and UAE. Each country has a certain “target group” for which sandboxing is done. All these countries have so far created a sandboxed environment to support financial institutions (FIs) and fintech firms, the report noted.
Cryptocurrencies
In India, for instance, since cryptocurrencies are not recognised officially, virtual currencies stored in e-wallets are exposed to hacking and users are exposed to a lack of recourse in case of any problems or disputes. The RBI has been cautioning users about the risks of dabbling in virtual currencies that it does not recognise, since 2013.
The finance ministry has set up a panel to study regulation of virtual currencies.
