SEBI had introduced a framework for ‘Regulatory Sandbox’ via SEBI Circular dated June 5, 2020 (“June 2020 Circular”). Under this sandbox framework, entities regulated by SEBI could apply to be granted certain facilities and flexibilities to experiment with FinTech solutions in a live environment and on limited set of real customers for a limited time frame. SEBI has now issued the Revised Framework for Innovation Sandbox via SEBI Circular dated February 02, 2021 (“February 2021 Circular”) to revise the June 2020 Circular.
In order to encourage innovation and make participation in the Innovation Sandbox more convenient, the objective and eligibility criteria of the Innovation Sandbox has been revised with graded entry norms. The revised objectives are to (i) create new opportunities in the securities market and (ii) to make existing services more efficient / investor friendly/ inclusive by promoting innovation both in terms of new products and services as well as new ways of delivering existing products and services.
Further, two stages have now been introduced for Innovation Sandbox. During Stage I, limited access to the test environment shall be provided and there shall be cap on the utilization of resources in terms of processing power, memory, storage etc. During Stage II, the cap on the utilization of resources shall be removed, subject to availability of resources at that point of time.
It is pertinent to note that while under the June 2020 Circular, only the entities registered with SEBI under section 12 of the SEBI Act 1992 were eligible for testing in the regulatory sandbox, under the February 2021 Circular, the applicant is, inter alia, only required to be an Indian citizen or an entity registered in India. The February 2021 Circular specifically states that the stated objectives of the framework would be achieved by giving access to both test data and test environment to Financial Institutions, FinTech firms, start-ups including entities not regulated by SEBI including individuals.
The revised framework also states that enabling organizations shall endeavor to make the entire sandbox participation lifecycle (applying, tracking, on-boarding, monitoring, reporting, etc.) completely digital to ensure transparency and efficiency.
The Innovation Sandbox web portal can be accessed here.
The February 2021 Circular can be accessed here.
This update has been contributed by Suchita Amabadipudi (Partner) and Smriti Tripathi (Associate).
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