The Securities and Exchange Board of India (SEBI) has released a discussion paper on a framework for a ‘regulatory sandbox,’ wherein companies dealing with financial technologies can test new technologies and products in a live market environment.
In the discussion paper, the capital markets regulator said that the regulatory sandbox would be defined as a live, testing environment where new products, processes, services and business models could be deployed on a limited set of eligible customers for a specified period of time, with certain relaxations in the regulations and guidelines.
“Innovation through investor-centric experimentation has the potential to create better financial products, lower the costs of transaction for investors and promote financial inclusion especially for Indian investors with limited means,” stated the SEBI paper.
“However, there have been instances when innovation without proper regulatory oversight has caused damage to investors and economies. Therefore, it is imperative that new technology intensive business models and innovations are deployed with proper regulatory oversight and risk mitigation safeguards,” it added
According to the SEBI, the sandbox is intended to serve as a testing ground for new business models and technologies that benefit the investors, Indian markets and the Indian economy at large.
To begin with, all market participants that are registered with the SEBI will be eligible to test within the sandbox. At a later stage, SEBI may allow sandbox access to fintech start-ups and other fintech firms as well.
Meanwhile, to be eligible to be tested in the sandbox, a solution need to show that it directly benefits the investors and poses no risks to the financial markets among other parameters.
