RBI tweaks norms related to Regulatory Sandbox scheme

Contact Counsellor

Last Updated04/03/2024

Recently, the RBI revamped its regulatory sandbox framework to promote innovation in the financial sector.

The new framework enables technology firms to submit on-tap proposals, replacing the previous cohort-based system.
Timelines for various stages of the regulatory sandbox process have been extended from seven months to nine months.
The target applicants for entry to the RS are fintech companies, including startups, banks, financial institutions, any other company, Limited Liability Partnership (LLP) and partnership firms, partnering with or providing support to financial services businesses.
Sandbox entities are now required to comply with provisions of the Digital Personal Data Protection Act, 2023, ensuring data security and privacy.

The move comes amidst concerns that RBI's stringent stance on regulatory compliance, as seen in the case of Paytm Payments Bank, could stifle innovation.
The new framework aims to strike a balance between fostering innovation and ensuring regulatory compliance.

The RBI had issued the ‘Enabling Framework for Regulatory Sandbox’ in August 2019.
The scheme involves live testing of new financial products or services in a controlled regulatory environment.
It acts as a "safe space" for business as the regulators may or may not permit certain relaxations for the limited purpose of testing.
It allows regulators, innovators, financial service providers, and customers to test new financial innovations, collecting evidence on benefits and risks.
It facilitates the development of innovation-friendly regulations, enabling the delivery of low-cost financial products.
It is potentially an important tool which enables more dynamic, evidence-based regulatory environments that adapt to emerging technologies.