Financial Inclusion in India and Its Challenges

[pib] Framework for Regulatory Sandbox


From UPSC perspective, the following things are important :

Prelims level: Regulatory sandbox

Mains level: Paper 3- Regulatory sandbox

The International Financial Services Centres Authority (IFSCA) has introduced a framework for Regulatory Sandbox to tap into innovative Fin-tech solutions.

Try answering this simple question:
Q.What is Regulatory Sandbox? What are its salient features?

Regulatory Sandbox

  • A regulatory sandbox usually refers to live testing of new products or services in a controlled/test regulatory environment for which regulators may permit certain regulatory relaxations for the limited purpose of the testing.
  • The objective of the sandbox is to foster responsible innovation in financial services, promote efficiency and bring benefit to consumers.
  • It provides a secure environment for fintech firms to experiment with products under supervision of a regulator.
  • It is an infrastructure that helps fintech players live test their products or solutions, before getting the necessary regulatory approvals for a mass launch, saving start-ups time and cost.

Its inception

  • The concept of a regulatory sandbox or innovation hub for fintech firms was mooted by a committee headed by then RBI executive director Sudarshan Sen.
  • The panel submitted its report in Nov 2017 has called for a regulatory sandbox to help firms experiment with fintech solutions, where the consequences of failure can be contained and reasons for failure analysed.
  • If the product appears to have the potential to be successful, it might be authorised and brought to the broader market more quickly.

What is the new framework?

  • IFSCA has introduced a framework for “Regulatory Sandbox”.
    Under this Sandbox framework, entities operating in the capital market, banking, insurance and financial services space shall be granted certain facilities and flexibilities.
  • It will experiment with innovative FinTech solutions in a live environment with a limited set of real customers for a limited time frame.
  • These features shall be fortified with necessary safeguards for investor protection and risk mitigation. The Regulatory Sandbox shall operate within the IFSC located at GIFT City (Gandhinagar).
  • IFSCA shall assess the applications and extend suitable regulatory relaxations to commence limited purpose testing in the Sandbox.

Other propositions

  • As additional steps towards creating an innovation-centric ecosystem, the IFSCA has proposed the creation of an “Innovation Sandbox”.
  • It will be a testing environment where Fin-tech firms can test their solutions in isolation from the live market.
  • This would be based on market related data made available by the Market Infrastructure Institutions (MIIs) operating in the IFSC.
  • The Innovation Sandbox will be managed and facilitated by the MIIs operating within the IFSC.

Back2Basics: GIFT City, Gandhinagar

  • GIFT city is India’s first operational smart city and international financial services centre (much like a modern IT park).
  • The idea for GIFT was conceived during the Vibrant Gujarat Global Investor Summit 2007 and the initial planning was done by East China Architectural Design & Research Institute (ECADI).
  • Currently approximately 225 units/companies are operational with more than 12000 professionals employed in the City.
  • The entire city is based on concept of FTTX (Fibre to the home / office).The fiber optic is laid in fault tolerant ring architecture so as to ensure maximum uptime of services.
  • Every building in GIFT City is an intelligent building. There is piped supply of cooking gas. India’s first city-level DCS (district cooling system) is also operational at GIFT City.

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