Reserve Bank of India (RBI) is said to be working on a regulatory sandbox for fintech companies can test out their product before releasing it to public usage. This will also involve bypassing RBI regulations, though for testing purpose only.
Regulatory sandboxes typically involve temporary relaxations or adjustments of regulatory requirements to provide a “safe space” for startups or established firms to test new technology-based financial services in a live environment for a limited time, without having to undergo a full authorization and licensing process.
Gautam Chatterjee, principal adviser to the Department of Statistics and Information Management at the RBI, said, “More products are coming in the market. To guard against the creative vulnerabilities, the idea is to bring in a regulatory sandbox where anybody can bring in a new product and it can be first tested before going to public.”
“Today, all departments in the RBI are relying on data analytics. A regulatory sandbox, to separate running computer programs to mitigate system failures and software vulnerabilities from spreading, will help in product innovation as more products are coming in frequently,” said Chatterjee to Economic Times at an event.
Governments, especially in developed economies, are striving to encourage online fintech innovation and for this the regulatory sandbox concept is taking off worldwide. The U.K. was the first country to implement a regulatory sandbox, announcing the approach in 2015 and approving the first sandbox fintech services in 2016. This was followed by Australian sandbox, introduced in December 2016, differs from the approach in the U.K. and some other countries in that it doesn’t require companies to apply for individual approval.
Additionally, RBI is also setting up data science labs to keep pace with innovation in the digital lending space including online P2P lending.
“A data science lab will be opened in the RBI with a mixed team of engineers, economists and statisticians and they will be going through internal data of each vertical,” said Chatterjee.
RBI has set up an inter-regulatory working group to study regulatory issues relating to fintech and digital banking in India.
As per the RBI, P2P Lending is a form of crowd-funding used to raise loans which are paid back with interest. Currently, Indian P2P has more than 30 players, and the market size is slated to cross US$4-5 billion by 2023. The VC activity in the sector is also high with around USD 221 Mn flowing in the last two years. Naturally, RBI issued final guidelines in Oct’17 for P2P Lending in order to better regulated and also make it trustworthy.
It may also be recalled that last month, RBI has also set up a new unit to supervise, oversee its efforts in emerging technologies including cryptocurrency, blockchain and Artificial Intelligence (AI).