Regulatory Sandbox For Blockchain Proposed By India’s Securities Regulator

Blockchain, News, Regulation | March 1, 2019 By:

The Securities and Exchange Board of India (SEBI) is planning to set up a regulatory sandbox to allow greater use of innovative technologies, such as blockchain and artificial intelligence (AI), in the securities markets.

SEBI said that innovation in financial technologies like blockchain for settlement can be better done through a ‘sandbox’ mechanism. According to SEBI, a regulatory sandbox will allow them to assess and test the module and grant specific exemptions from the applicable laws for a specified time period, subject to necessary conditions in the interest of markets and investors.

A regulatory sandbox typically provides a safe and prescribed area for new ideas which does not face the same scrutiny or risk that a fully launched service faces. Jurisdictions like the UK and Australia provide for regulatory sandbox while granting exemptions from rules for a specified period, which is maximum two years in case of the UK and maximum 12 months by Australia.

To enable Sebi to lay down a platform for a regulatory sandbox in India, the Sebi Act needs to be amended. The proposal, which will be first presented before the Sebi’s board and then sent to the Finance Ministry, includes an applicant clearly defining the scope and phases of trial, types of customers, services, timing and termination of the trial. Tech companies will also need to have resources to support the testing and a realistic business plan to deploy it on a commercial scale in India after the exemption period.

“For the exemptions, the product, service or solution has to be innovative and must improve provision of services in the market, enhance the efficiency and effectiveness of risk management and also open up new opportunities,” SEBi said. “The applicant will have to be led and managed by persons who are “fit and proper” to meet regulatory guidelines and they would need to put in place appropriate procedures to select and service customers.”

In addition to the proposal, SEBI is also seeking certain amendments to prohibit manipulation of financial statements of listed companies to manipulate share prices.