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What is Regulatory Sandbox (RS)?

To promote innovations in the financial technology (fintech), Reserve Bank of India (RBI) had introduced Regulatory Sandbox (RS).

What is Regulatory Sandbox (RS)?

Regulatory Sandbox (RS) refers to live testing of new products / services in controlled / test regulatory environment for which regulators may (or may not) permit certain regulatory relaxations for the limited purpose of testing.

The objective of RS is to foster responsible innovation in financial services, promote efficiency and bring benefit to consumers.

Which financial products / services can be tested under RS?

The proposed financial service to be launched under RS should be new / emerging technology or use of existing technology in innovative way and should address a problem and bring benefit to customers.

Who can apply under RS?

  • Fintech companies (including start-ups), banks, financial institutions, company, partnership firms, Limited Liability Partnerships (LLPs) can apply for entry to RS.
  • The entity shall have a minimum net worth of Rs.10 lakh as per its latest audited balance sheet.
  • The entity, whose application for participation is rejected under RS, will be eligible to apply again with same or similar product only after the completion of mandatory cooling period of 6 months.
  • The applications can be made under ‘On-tap’ facility.

What are recent updates in the framework for RS?

  • The timelines of the various stages of the RS process have been revised from 7 months to 9 months. 
  • The updated framework also requires sandbox entities to ensure compliance with provisions of the Digital Personal Data Protection Act, 2023.

What are the themes of cohorts in RS?

Cohort Themes Products / services to be included
1st Cohort Retail payment – Mobile payments including feature phone-based payment services
– Offline payment solutions
– Contactless payments
2nd Cohort Cross border payments

 
3rd Cohort MSME lending

 
4th Cohort Prevention and Mitigation of Financial Frauds Focus would be on using technology to –
– reduce the lag between the occurrence and detection of frauds
– strengthening the fraud governance structure
– minimizing response time to frauds
5th Cohort Theme neutral Innovative products / services / technologies cutting across various functions in RBI’s regulatory domain


References

Reserve Bank of India. (2019, August 13). 'Enabling Framework for Regulatory Sandbox (Updated on February 28, 2024)'. Retrieved from https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=1262

Reserve Bank of India. (2019, November 04). 'Reserve Bank announces the opening of first cohort under the Regulatory Sandbox'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=48550

Reserve Bank of India. (2020, December 16). 'Reserve Bank announces opening of Second Cohort under the Regulatory Sandbox'. Retrieved from https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=50814

Reserve Bank of India. (2021, October 08). 'Regulatory Sandbox – Announcement of Theme for Fourth Cohort and Review of Enabling Framework'. Retrieved from https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=52371

Reserve Bank of India. (2022, September 05). 'Regulatory Sandbox – Fifth Cohort Announcement and Opening of ‘On Tap’ application for Second Cohort on ‘Cross Border Payments’'. Retrieved from https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=54315

Reserve Bank of India. (2024, February 28). 'Enabling Framework for Regulatory Sandbox'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=57406


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