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India’s markets regulator SEBI is all for FinTech innovation, enables Reg Sandbox

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India’s FinTech ecosystem is at the cusp of a major revolution and in a move that could expedite it further the country’s market regulator SEBI has finally enabled the Regulatory Sandbox (RS). The RS will help FinTechs, under its ambit, for live testing of new products and services on select customers before a full-fledged launch.

The capital markets regulator, on May 20, 2019, had released its RS framework, to create an ecosystem that promotes innovation in the securities and equities market.

“SEBI is proposing an ‘Innovation Sandbox’, which would be a testing environment, where fintech firms and entities not regulated by SEBI, including individuals, could test their proposed solutions offline, isolated from the live market, subject to fulfillment of the eligibility criteria, based on market-related data made available by stock exchanges, depositories, and qualified registrar and share transfer agents (QRTAs),” the regulator had stated in a circular then.

SEBI, after a board meeting in Mumbai on Monday, said that it has decided to initially allow the registered market players to live-test their respective products and service on a small group or set of customers for a specific period of time with certain relaxations in rules and guidelines.

Initially, all Sebi-registered entities will be eligible to participate in such a ‘regulatory sandbox’, a live testing environment where new products processes, services, and business models can be deployed on a limited set of eligible customers for a specified period of time with certain relaxations in rules and guidelines, the regulator said adding that it has also adopted a cross-domain approach for this regulatory sandbox for those not registered.

At a later stage, fintech startups and other entities that are not regulated by Sebi may also be allowed, but no exemptions would be granted from the existing investor protection framework, KYC and anti-money laundering rules, reporter The Press Trust of India.

The proposed ‘regulatory sandbox’ is intended to serve as a testing ground for new business models and technologies that benefit investors, Indian markets and the economy at large.

Under this framework, the eligible entities would be granted certain facilities and flexibilities to experiment with fintech solutions in a live environment and on real customers, while ensuring that there are necessary safeguards for investor protection and risk mitigation.

While the Indian capital market participants have been early adopters of technology, the Securities and Exchange Board of India (Sebi) is of the view that adoption and usage of emerging financial technology can be a key instrument to further develop and maintain an efficient, fair and transparent ecosystem.

Banking regulator the Reserve Bank of India had also launched an RS for FinTechs that fall under its ambit.

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