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What are SOPs for Interoperable Regulatory Sandbox?

Reserve Bank of India (RBI) has issued Standard Operating Procedure (SOP) for Inter-operable Regulatory Sandbox (IoRS).

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.

What is Inter-operable Regulatory Sandbox (IoRS)?

Inter-operable Regulatory Sandbox (IoRS) is a mechanism to facilitate testing of innovative hybrid financial products / services falling within the regulatory ambit of more than one financial sector regulator. 

What is the basis of Standard Operating Procedure (SOP) for IoRS?

To facilitate testing of innovative products / services falling within the regulatory ambit of more than one financial sector regulators [viz. Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDAI), International Financial Services Centres Authority (IFSCA) and Pension Fund Regulatory and Development Authority (PFRDA)], a Standard Operating Procedure (SOP) for Inter-operable Regulatory Sandbox (IoRS) has been prepared by the Inter-Regulatory Technical Group on FinTech (IRTG on FinTech) constituted under the aegis of the Financial Stability and Development Council - Sub Committee (FSDC-SC).

The Group is chaired by Chief General Manager, FinTech Department, RBI with representation from other financial sector regulators, viz., SEBI, IRDAI, IFSCA and PFRDA and one representative each from Department of Economic Affairs (DEA), Ministry of Finance and Ministry of Electronics and Information Technology (MeITY), Government of India.

Who are the participants in IoRS?

The financial regulators that are members of the IRTG on FinTech have consented to participate in the IoRS arrangement under the aegis of IRTG on FinTech.

Which product / services are admitted in IoRS?

Financial products / service providers whose business models / activities / features fall within the remit of more than one financial sector regulator, are considered for the testing under IoRS.

What are the guidelines on Governance?

  • FinTech Department of RBI shall act as nodal point for receiving applications under IoRS and shall be designated as ‘Coordination Group (CG)’ for IoRS. 
  • The application for IoRS shall be on ‘on tap’ basis. 
  • The RS framework of the regulator under whose remit the ‘dominant feature’ of the product falls, shall govern it as ‘Principal Regulator (PR)’. The regulator under whose remit the other features apart from the dominant feature of the product fall shall be the ‘Associate Regulator (AR)’
  • Two sets of factors would be considered for deciding the dominant feature. Firstly, the type of enhancement to the existing products and secondly, the number of relaxations sought by the entity for undertaking the test under the IoRS. The dominant feature shall be decided with greater weightage to the number of relaxations sought. 
  • Based on the dominant features of the product, the eligibility criteria and networth criteria as applicable for the RS of the concerned regulator (PR) shall be applicable to the applicant entity for participation in the IoRS.
  • The PR shall reserve the right of admissibility of the hybrid product / solution / innovation as per its RS framework and accordingly communicate to the applicant. The decision to that effect shall also be communicated to CG / IRTG on FinTech, for information.
  • ARs shall provide specific inputs, stipulate condition regarding aspects falling under its remit for parameters to be tested, boundary condition, risks to be monitored, etc. within 30 days from receipt of reference from the PR.
  • The test design shall be finalised by the PR in consultation with the AR.
  • Any co-ordination issue between PR and AR to reach common views on the regulatory treatment of innovative products, services and business models shall be discussed and sorted out in the IRTG on FinTech before initiation of the live testing under IoRS. 
  • The evaluation of product shall be done as per the framework of the PR, which may also reflect appraisal by the ARs, while deciding on suitability and viability of the product / services.
  • Post successful exit from the IoRS, the entity shall approach PR and ARs, for authorisation and for seeking regulatory dispensation before launching the product in the market. 
  • The product being admitted and successfully exiting the IoRS shall be published by the regulator concerned vide Press Release, specifically indicating that, it is under IoRS of IRTG on FinTech.


References

Reserve Bank of India. (2022, October 12). 'Inter-operable Regulatory Sandbox: Standard Operating Procedure'. Retrieved from https://www.rbi.org.in/scripts/bs_viewcontent.aspx?Id=4196

Reserve Bank of India. (2022, October 12). 'Standard Operating Procedure for Inter-operable Regulatory Sandbox'. Retrieved from https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=54528


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