Reserve Bank Of India Excludes Crypto From FinTech Regulatory Sandbox

Blockchain, News, Regulation | April 22, 2019 By:

The Reserve Bank of India (RBI), the country’s central bank, has released the draft framework for its FinTech regulatory sandbox.

In July 2016, the RBI formed an inter-regulatory Working Group (WG) to look into and report on the granular aspects of FinTech and its implications so as to review the regulatory framework and respond to the dynamics of the rapidly evolving FinTech scenario. The WG report was released on February 08, 2018 for public comments.

The WG report includes introducing an appropriate framework for a regulatory sandbox within a well-defined space and duration where the financial sector regulator will provide the requisite regulatory guidance, so as to increase efficiency, manage risks and create new opportunities for consumers.

“The RS allows the regulator, the innovators, the financial service providers (as potential deployers of the technology) and the customers (as final users) to conduct field tests to collect evidence on the benefits and risks of new financial innovations, while carefully monitoring and containing their risks,” the report said. “It can provide a structured avenue for the regulator to engage with the ecosystem and to develop innovation-enabling or innovation-responsive regulations that facilitate delivery of relevant, low-cost financial products. The RS is potentially an important tool which enables more dynamic, evidence-based regulatory environments which learn from, and evolve with, emerging technologies.”

According to the report, the RBI FinTech regulatory sandbox would allow testing of innovative products/services/technology, including blockchain, smart contracts, artificial intelligence (AI) and Machine Learning applications. However, the report said that entities may not be suitable for RS if the proposed financial service is similar to those that are already being offered in India. These include cryptocurrency services, trading/investing/settling in crypto assets, and initial coin offerings, (ICO), among others.

“The proposed FinTech solution should highlight an existing gap in the financial ecosystem and the proposal should demonstrate how it would address the problem, or bring benefits to consumers or the industry or perform the same work more efficiently,” the report said. “The applicants should demonstrate that there is a relevant regulatory barrier that prevents deployment of the product/service at scale, or a genuinely innovative and significantly important product/service/solution is proposed for which relevant regulation is necessary but absent.