Entry by Invitation only
In August 2019, the Reserve Bank of India (RBI) released its final guidelines for a regulatory sandbox (RS) for fintech firms. In a situation where traditional financial sectors are being disrupted by technology innovations, this is indeed a welcome step. The RS is an attempt by the RBI to be more agile and absorb disruptions in the financial space.
The guidelines indicate that the objective of the RS is “to provide an environment to innovative technology-led entities for limited-scale testing of a new product or service that may or may not involve some relaxation in a regulatory requirement before a wider-scale launch.”
The move by the RBI is laudable. Most innovations in technology happen in a regulatory grey space, where rules are not properly defined. For example, mobile wallets were developed in this regulatory grey space in the late 2000s following the boom in the telecom sector in India. In response, the RBI came out with guidelines for the operation of wallets. Crucially, the RBI set a limit for how much money can be stored in a wallet, thereby curtailing the larger systemic risk that wallets could have posed.
Regulations are often post facto and the “sandbox” gives the RBI a chance to work with fintech innovators and help mitigate potential risks. By working closely with actors who are responsible for advancements in technology, it also gives regulators a ring-side view of future problems faced by the industry. Fintech companies, on the other hand, will be able to test new products, services or business models with customers in a “live” environment, albeit subject to certain safeguards and oversight. Above all, the RS is expected to be a facilitator of constructive dialogue between the regulator and those regulated.
The final guidelines mention that some of the products, services and technology which would be considered for testing in the sandbox would be retail payments, financial inclusion, money transfer services. This indicates that despite the strides made in pushing digital payments, cash usage still reigns supreme.
Financial technology innovation will need support from other regulators such as the Securities Exchange Board of India (SEBI), Telecom Regulatory Authority of India (TRAI), Pension Fund Regulatory and Development of India (PFRDA) and Insurance Regulatory Development Authority of India (IRDAI) as well. The cross-sectoral impact of fintech regulation and the start-up space need to be better absorbed by the sandbox.
To discuss the implications of this policy experiment, its role in advancing fintech innovation in the country and address attendant areas of concern, Observer Research Foundation proposes to organise a closed-door discussion on the RBI guidelines. Being hosted as the third edition of Mumbai Tech Talk series launched by ORF, this multi-stakeholder forum will also discuss how the government should be setting up multiple regulatory sandboxes at both the state- and centre-level, to include and address the concerns other domains of technology.
