Revised Framework for Regulatory Sandbox

SEBI/HO/ITD/ITD/CIR/P/2021/575 · 2021-06-14 · SEBI Information Technology Department

Summary

This section establishes the revised framework for SEBI's Regulatory Sandbox to promote innovation in the securities market. It defines the sandbox's objective as allowing regulated entities to test FinTech solutions with real users under specific flexibilities. The text outlines eligibility criteria, testing stages, and the application process for intermediaries seeking participation. This section outlines the procedural requirements for Stage-II sandbox testing, including application submission and evaluation criteria. It details regulatory exemptions, limited registration processes, and mandatory reporting obligations for applicants. Additionally, it defines user protection rights, grievance mechanisms, and exit strategies for sandbox participants. This section details the specific components required for exit and withdrawal strategies, including user notification and settlement timelines. It establishes that permissions expire at the end of Stage-II testing and outlines the applicant's right to withdraw with prior notice. Furthermore, it defines SEBI's powers to revoke approval based on various grounds and prescribes the procedural safeguards and post-revocation obligations for

Text

With the intent to promote innovation in the securities market, SEBI had issued framework for Regulatory Sandbox vide circular no.: SEBI/HO/MRD-1/CIR/P/2020/95 dated June 05, 2020.

In order to enhance the reach and achieve the desired aim, the eligibility criteria of the Regulatory Sandbox is revised.

To grant certain facilities and flexibilities to the entities regulated by SEBI so that they can experiment with FinTech solutions in a live environment and on limited set of real users for a limited time frame.

The updated guidelines pertaining to the functioning of the Regulatory Sandbox are provided at Annexure A.

This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 and Section 19 of the Depositories Act, 1996 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

All entities registered with SEBI under section 12 of the SEBI Act 1992, shall be eligible for testing in the regulatory sandbox. The entity may apply either on its own or in partnership with any other entity. In either scenarios, the registered market participant shall be treated as the principal applicant, and shall be solely responsible for testing of the solution.

During the stage-I testing, applicant shall use limited and identified set of users with maximum cap on users based on the requirement of the applicant duly approved by SEBI on case to case basis. These users will be required to provide positive consent including their understanding of the risks of using the solution.

During the stage-II testing, applicant shall test with larger set of identified users with maximum cap on users based on the requirement of the applicant duly approved by SEBI on case to case basis. These users will be required to provide positive consent including their understanding of the risks of using the solution.

The applicant should be an entity registered with SEBI under section 12 of the SEBI Act 1992. The entity may apply either on its own or in partnership with any other entity. In either scenario, the registered market participant shall be treated as the principal applicant, and shall be solely responsible for all aspects of participation in the Regulatory Sandbox.

The applicant should have a genuine need for live testing the solution on real users. The applicant should provide justification that testing in test environment with test data is not enough. The applicant should provide justification that the solution cannot be deployed without relaxations in certain regulations being sought.

The solution should be pertaining to the securities market and should be either new innovative solutions or a solution for performing existing services in better way by improving the existing processes or facilitating inclusion.

The solution should offer identifiable benefits (direct or indirect) to the users and/or to the securities market as a whole.

Source: SecMarx — Revised Framework for Regulatory Sandbox. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.