RBI and SEBI Issue Standard Operating Procedure for Inter-Operable Regulatory Sandbox (IoRS)

SEBI came out with a standard operating procedure for inter-operable regulatory sandbox in a bid to facilitate testing of innovative products falling within the regulatory ambit of more than one financial sector regulators.

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What Is Regulatory Integration:

Financial products or service providers whose business models fall within the remit of more than one financial sector regulator such as Reserve Bank of India (RBI), Sebi, IRDAI (Insurance Regulatory and Development Authority of India), PFRDA (Pension Fund Regulatory & Development Authority) and IFSCA (International Financial Services Centres Authority) will be considered for the testing under Inter-operable Regulatory Sandbox (IoRS).

What Is The Need:

“To obviate the need of innovators, to engage with different regulators regarding their hybrid product, a common window has been made available,” the Securities and Exchange Board of India (SEBI) said in a press release.

IoRS has been prepared by the Inter-Regulatory Technical Group (IRTG) on FinTech. The group was constituted under the aegis of the Financial Stability and Development Council-Sub Committee (FSDC-SC). The group, in addition to the members from financial sector regulators, has representation from the Department of Economic Affairs, Ministry of Finance and Ministry of Electronics and Information Technology.

Who Will Take Lead:

Under the procedure, the FinTech Department of RBI will act as nodal point for receiving applications under IoRS and will be designated as Coordination Group for IoRS. All the necessary secretarial support will be provided by them. The application of IoRS will be on ‘on tap basis’ in a prescribed application form.

The regulatory sandbox (RS) framework of the regulator, under whose remit the ‘dominant feature’ of the product falls, governs it as ‘Principal Regulator (PR)’. The regulator/s under whose remit the other features apart from the dominant feature of the product fall will 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 like loans, deposits, capital market instruments, insurance, G-sec instruments, pension products, etc., and Secondly, the number of relaxations sought by the entity for undertaking the test under the IoRS. The dominant feature will be decided with greater weightage to the number of relaxations sought. The relaxation, if warranted, will be considered by PR/AR on a case-to-case basis and a decision to that effect will be binding and final. Based on the dominant features of the product, the eligibility criteria and net worth criteria as applicable for the RS of the concerned regulator will be applicable to the applicant entity for participation in the IoRS.

What Has Been Said:

As per the statement, the applications from Indian fintechs having global ambition and foreign fintechs seeking entry to India will be referred to IFSCA for taking forward the proposals, as IFSCA will be the PR for all such applications .”Any coordination 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 IRTG on FinTech in its subsequent meetings shall monitor the progress of the products being tested under IoRS,” it added.

Post successful exit from the IoRS, the entity will have to approach PR and AR(s), for authorisation and for seeking regulatory dispensation before launching the product in the market. The decision of the respective regulator would be binding on the entity. The product being admitted and successfully exiting the IoRS will be published by the regulator concerned through press release, specifically indicating that it is under IoRS of IRTG on FinTech.