RBI releases guidelines for testing fintech innovations

The Reserve Bank of India (RBI) has finalised guidelines for the regulatory sandbox to test innovative financial products and technologies. The programme will help financial service providers collect evidence on the benefits and risks of new innovations in a regulated environment monitored by RBI.

The guidelines also finalised the application process for the sandbox programme. Fintech companies including startups, banks, financial institutions and companies providing financial services can apply for the programme. The directors or promoters or the applicant companies will have to satisfy the fit and proper criteria, according to the guidelines issued on Tuesday.

The set of mandatory compliances an applicant must satisfy include customer privacy, data protection, security of transactions, secure storage and access to payments data of stakeholders as well as KYC requirements.

The central bank had first proposed a framework for setting up the regulatory sandbox in April, which barred cryptocurrency-related products and services.

The sandbox will encourage innovations in retail payments, money transfer services, marketplace lending, digital KYC, financial advisory services, wealth management services, digital identification services, smart contracts, financial inclusion and cybersecurity products, according to a statement issued by the RBI.

The sandbox is also aimed at encouraging innovative technology in the fields of mobile payments, data analytics, application program interface (API) services, blockchain applications as well as applications under artificial intelligence (AI) and machine learning (ML).

A FinTech Unit (FTU), overseen by an inter-departmental group set up by the RBI with participation from industry experts, will oversee the process of the sandbox, starting with the preliminary screening of applicants. The FTU will be responsible for testing the design and suggesting regulatory modifications and evaluation of the final product for admission to the RS.

“The RBI will communicate the entire sandbox process including its launch, the theme of the cohort, successful applicants selected for RS, entry and exit criteria and products/services found viable and acceptable under the RS through its official website,” said the guidelines issued by the RBI.