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Regulatory Sandbox Programme

Regulatory Sandbox Programme

Context:

Reserve Bank of India (RBI) has announced the names of two startups that have been selected as a part of its regulatory sandbox programme.

Regulatory Sandbox Programme:

  • A regulatory sandbox is a framework set up by a financial sector regulator to allow small scale and live testing of innovations by private firms in a controlled environment.
  • The sandbox entities are subject to restrictions such as the maximum number of customers served.
  • According to SEBI’s guidelines, all entities registered under the SEBI Act 1992 are eligible for testing in their sandbox even if they use the services of a fintech firm.
  • The IRDAI’s sandbox exclusively looks at products and services in the insurance sector and has set up a panel to review applications.

Significance:

  • It introduces the potential to change the nature of the relationship between regulators and financial services providers toward a more open and active dialogue.
  • Its primary objective is to promote competition and efficiencies in financial services markets through innovation.
  • The regulatory sandboxes allow financial regulators to mitigate future risks by working with fintech innovators by having a ring-side view of the potential problems.

Need for Regulatory Sandboxes :

  • According to NITI Aayog, India is one of the fastest-growing fintech markets globally, and industry research has projected that $1 trillion, or 60% of retail and SME (small and medium-sized enterprises) credit, will be digitally disbursed by 2029.
  • The Indian fintech ecosystem is the third-largest in the world, attracting nearly $6 billion in investments since 2014. Fintech or financial technology companies use technology to provide financial services such as payments, peer-to-peer lending and crowdfunding, among others.
  • Therefore, in order to protect customers and safeguard the interests of all stakeholders, and streamline their influence on the financial system, there is a need for a regulatory and supervisory framework for fintech firms.

Source: The Hindu