INDIA Law and Practice Contributed by: Shilpa Mankar Ahluwalia, Purva Anand and Ansh Jain, Shardul Amarchand Mangaldas & Co
Inter-operable Regulatory Sandbox India’s financial regulators have established an Inter- operable Regulatory Sandbox (IoRS) to facilitate testing of innovative products or services that fall within the remit of more than one financial regulator. The IoRS framework has been operationalised by the Inter-Regu - latory Technical Group on FinTech (“IRTG on FinTech”), which comprises representatives from the RBI, SEBI, IRDAI, the Pension Fund Regulatory and Development Authority (PFRDA) and the International Financial Ser - vices Centres Authority (IFSCA), and is chaired by the Chief General Manager of the FinTech Department, RBI. Under the IoRS framework, an applicant identifies the principal regulator based on the product’s domi - nant function, while associated regulators participate in a co-ordinated evaluation and testing process. This structure ensures regulatory interoperability and reduc - es duplicative oversight for fintech products spanning multiple regulatory domains. The principal regulator conducts detailed scrutiny of the application based on its own framework, and subsequently co-ordinates with associated regulators regarding features that fall under their respective remits. Any issues of alignment or diver - gence between regulators in determining appropriate regulatory treatment are deliberated on and resolved within the IRTG on FinTech prior to commencement of live testing. 2.6 Jurisdiction of Regulators The regulatory regime governing the fintech space across most key verticals is primarily driven and implemented by the RBI, with support on specific, specialised aspects from the NPCI, UIDAI, IRDAI and SEBI (see 2.2 Regulatory Regime ), as set out below. RBI In India, the primary regulator for fintech is the RBI, which has shifted from a light-touch approach to a full- regulation model in recent years. The RBI is responsive to market changes and technological advances, and regulations have been promptly updated to account for such developments. NPCI The NPCI is an umbrella, quasi-regulatory organisa - tion for operating retail payments and settlement sys - tems in India. It is a joint initiative of the RBI and the Indian Banks’ Association under the PSS Act, and was
companies to live-test their products in a controlled/ modified regulatory environment, provided that such product is compliant with the designated theme for the sandbox cohort. Entities that satisfy the following eligibility criteria may approach the RBI for testing their products in a sand - box: • net worth of at least INR1 million; • satisfactory credit score/history of promoters and directors; • promoters and directors of the applicant entity meeting the prescribed “fit and proper” criteria; • demonstrated ability to comply with personal data protection laws; and • adequate IT infrastructure and safeguards to pro - tect against unauthorised access, destruction and disclosure. The framework outlines the five stages of the sand - box process for a single cohort involving preliminary screening, finalising test designs, application assess - ment, closely monitored testing and, lastly, assess - ment of the final output by the RBI. In practice, the end-to-end sandbox process takes more than one and a half years for each cohort. To date, the RBI has announced five cohorts – on retail payments (February 2021), cross-border pay - ments (December 2020), micro, small and medium- sized enterprise (MSME) lending (October 2021), pre - vention and mitigation of financial frauds (June 2022) and a fifth “theme-neutral” cohort (October 2023). Of these, the successful exit of 19 applicants from the five cohorts has led to innovations such as a purely digital cash flow-based credit underwriting process for MSMEs and a voice-based UPI payment solution that supports local languages and offline use. IRDAI and SEBI Similar to the regulatory sandboxes implemented by the RBI for fintech products, the Insurance Regulatory and Development Authority of India (IRDAI) and the Securities and Exchange Board of India (SEBI) have proposed similar regulatory sandbox products in the insurtech space, and for market-linked financial prod - ucts offered by SEBI-regulated entities, respectively.
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