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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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