RBI’s Updated Framework for Sandbox in Fintech

RBI’s new regulatory guidelines on various FINTECH processes

• • In the aftermath of impeding ban on Paytm, there were rumours that other UPI payments system may also go through similar scrutiny.
  • It appeared as if RBI was standing against Fintech companies and its success. Even the RBI Governor had to speak up on the issue and assure that the body is not against any Fintech company.
  • The RBI Governor, Shri. Shaktikanta Das laid out a 7-point message to all Fintech companies stating, that the body is not against the system but only the firms to comply with regulatory norms.
  • The 7-point message clarifies the following:

1. RBI is and will continue to support innovation and technology in the financial sector.
2. Let there not be any doubt about RBI’s commitment to promote fintechs, innovation, technology.
3. We have been engaged with the entity (Paytm)for quite some time.
4. It will not be appropriate to share granular details on Paytm issue.
5. Individual entities should be mindful of these aspects for long-term success.
6. All actions of RBI are in the best interest of systemic stability, protection of customers’ interest.
7. RBI will be issuing FAQs sometime next week on Paytm issue.

• Later, FAQs were received on Paytm issue, but all these brought a huge negative impression on the governing body.
• Fast forwarding to one month from the ban issued on Paytm, RBI has updated the Regulatory Sandbox (RS) Scheme.

Regulatory Sandbox (RS)

• What is the meaning Regulatory Sandbox (RS)? First of all, one should know what does Sandbox mean?
• Sandbox(RS) is a place where the developers can test their new product or experiment a new idea.
• It helps developers to review and make changes more effectively compared to the traditional methods.
• In a traditional method, the developers experiment their ideas in a real life scenario which can risk the reputation of the product or service.
• Fintech firms also use this concept of Sandbox for testing their services.

Framework for Regulatory Sandbox

• To address this issue, August 2019 with a wide range of consulting and conferences, RBI issued guidelines under “Enabling Framework for Regulatory Sandbox”.
• This helps Fintech companies to perform testing of their products and services at various stages.
• Under this regulated scheme, Fintechs can enable innovative financial services, increase efficiency and benefit their customers.
• Almost one month later, “Enabling Framework for Regulatory Sandbox” was updated by RBI.
• It has been revised on the basis of experience gained from past four and a half years and from the inputs received from Fintech companies.
• The new revised framework extends the testing period in sandbox from seven months to nine months at various stages.
• Here, a fintech applicant, who is interested in testing their product or service has to agree with Digital Personal Data Protection norms.

Participants for Regulatory Sandbox

The participants in this scheme include

1. 1. Fintech companies and start-ups,
   2. Banks and financial institutions
   3. Partnership firms
   4. Limited Liability Partnerships and
   5. Other companies providing financial support or services.

Conclusion:

As consumers, what we can expect is that henceforth

• • all fintech organizations will provide us financial products or services that are data protective
  • are fully KYC enabled and efficient service providers
  • any malpractices done by such companies will be curbed.

Now, let us wait and see how Fintech firms respond to these updated framework!