SEBI issues framework for the regulatory sandbox

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The Securities and Exchange Board of India in its notification dated 5th June 2020 has introduced a framework for a regulatory sandbox, in which entities regulated by SEBI shall be granted certain facilities and flexibilities to experiment with FinTech solutions in a live environment and on a limited set of real customers for a limited time frame.

The eligibility criteria for participants eligible for live testing includes the genuineness of innovation and testing. Under this, the applicant will have to demonstrate to SEBI how the proposed solution will add value to existing offerings in the Indian securities market. Further, the applicant will have to incorporate risk management strategy to mitigate and control potential risks to any market participant.

SEBI will evaluate the applications and inform of its potential suitability for a sandbox within 30 working days from the submission of the complete application. SEBI may issue guidance to the applicant according to the specific characteristics and risks associated with the proposed solution. Upon approval, the application shall proceed towards the “Testing Stage”. The participant shall disclose to its users that the solution shall operate in a sandbox and the potential key risks associated with the solution.

At the time of testing, SEBI will have the powers to revoke its approval if among other things the applicant suffers a loss of reputation, carries on business in a manner detrimental to users or the public at large; and “fails to effectively address any technical defects, flaws.”

Click here to read the Notification.

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