Reserve Bank of India Allows Fintech Companies to Set Up Regulatory Sandbox
The Reserve Bank of India (RBI) has provided fintechs, startups and lenders access to banking systems within a regulatory sandbox, a concept whereby digital firms can have access to the banking ecosystem & come out with a proof of concept for an innovation.
The Reserve Bank of India (RBI) has provided fintechs, startups and lenders access to banking systems within a regulatory sandbox to enable them to come up with proof of concept for innovative digital solutions in payments, lending and other financial. However, players are barred from developing tech for cryptocurrency, credit information bureau or initial coin offerings.
The regulatory sandbox is a concept whereby digital firms can have access to the banking ecosystem and come out with a proof of concept for an innovation. At the same time the access is extremely restricted, which ensures that failures do not cause loss to any of the constituents in the banking system. The central bank on Tuesday announced its draft enabling framework for a regulatory sandbox.
The areas where banks and fintechs can test their ideas include retail payments, money transfer services, marketplace lending, digital KYC, financial advisory, digital identification, wealth management, smart contracts, financial inclusio and cyber security. They can use new technology such as mobile applications, data analytics, application programme interface services, blockchain, artificial intelligence and machine learning applications. RBI said.
“Focus of regulatory sandbox should be narrow in terms of areas of innovation and limited in terms of intake. It shall begin the testing process with 10-12 selected entities through a comprehensive selection process as detailed in the framework under fit & proper criteria."
Under fit and proper criteria, the participating entity should have a minimum net worth of Rs 50 lakh and the promoters should not have violated any banking regulations. Applicants need to prove that their products or services are technologically ready for deployment. Bank of India added.
“Applicants should demonstrate there is a relevant regulatory barrier that prevents deployment of the product/service at scale, or a genuinely innovative and significantly important solution is proposed for which relevant regulation is necessary but absent,”
The RBI has defined startup as an entity that is less than seven-years old and turnover for any of the years has not exceeded Rs 25 crore. Also the entity must be working towards innovation, development or improvement of products or processes or services.
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