RBI Prescribes Fit And Proper Criteria To Live-test Financial Products, Services

To foster responsible innovation in financial services, the Reserve Bank of India has prescribed ‘fit and proper’ criteria for selection of participants/applicants for entry into the Regulatory Sandbox (RS) for live-testing of new products or services in a controlled/test regulatory environment.

Conditions to be met

In its final ‘Enabling Framework for Regulatory Sandbox’, the RBI said the conditions that every applicant should satisfy include that it should either be a company incorporated and registered in India, or banks licensed to operate in India; the entity should have a minimum net worth of ₹25 lakh, as per its latest audited balance sheet; and the promoter(s)/director(s) of the entity should be fit and proper.

As per the framework, the applicant should demonstrate that the products/services are technologically ready for deployment in the broader market; the entity must demonstrate arrangements to ensure compliance with existing regulations/laws on consumer data protection and privacy.

The target applicants for entry to the Regulatory Sandbox are fintech companies, including start-ups, banks, financial institutions, and any other company partnering with or providing support to financial services businesses.

RS usually refers to live testing of new products or services in a controlled/test regulatory environment for which regulators may (or may not) permit certain regulatory relaxations for the limited purpose of the testing.

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. Innovative products/services, which could be considered for testing include retail payments, money transfer services, marketplace lending, digital KYC, financial advisory services, wealth management services, digital identification services, smart contracts, financial inclusion products, and cyber security products.

Innovative technology, which could be considered for testing include mobile technology applications (payments, digital identity), data analytics, Application Program Interface (APIs) services, applications under blockchain technologies, Artificial Intelligence and Machine Learning applications.

Relaxation

The RBI said it may consider relaxing, if warranted, some of the regulatory requirements – relating to liquidity, board composition, management experience, financial soundness and track record – for applicants for the duration of the RS on a case-to-case basis.