Framework for Regulatory Sandbox
Summary
This part of the document introduces SEBI's Regulatory Sandbox framework, allowing regulated entities to test FinTech solutions in a live environment with specific safeguards. It outlines the applicability to SEBI-registered entities and details strict eligibility criteria focusing on innovation genuineness, risk mitigation, and user benefits. The text further describes the application process, evaluation stages, duration limits, and conditions for regulatory exemptions. This section outlines the regulatory relaxations available within the sandbox and mandates the submission of interim and final test reports to SEBI. It establishes obligations for applicants regarding user protection, risk disclosure, and record-keeping during and after the testing period. The text further details the procedures for extending or exiting the sandbox, including revocation grounds, due process, and post-revocation compliance requirements. This section details the specific risk assessment criteria, legal compliance checks, and post-testing deployment strategies required for sandbox applications. It outlines the regulatory relaxation process under SEBI guidelines and provides a flowchart for the applica
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SEBI now has decided to introduce a framework for “Regulatory Sandbox”. Under this sandbox framework, entities regulated by SEBI shall 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.
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 either on its own or engage the services of a FinTech firm. In either scenarios, the registered market participant shall be treated as the principal applicant, and shall be solely responsible for testing of the solution.
The solution should be innovative enough to add significant value to the existing offering in the Indian securities market.
The applicant should have a genuine need for live testing the solution on real customers. Further, the applicant should demonstrate that the solution cannot be developed without relaxing certain regulations, if any, being sought.
Before applying for testing in sandbox, limited offline testing of the solution should have been carried out by the applicant.
The solution should offer identifiable benefits (direct or indirect) to the investors or entities or to the capital market at large.
The solution should have proper risk management strategy to incorporate appropriate safeguards to mitigate and control potential risks to any market participants/users that may arise from the testing of the solution and shall propose appropriate safeguards to manage the risks and contain the consequences of failure.
The applicant should have the necessary resources to support testing in the sandbox and must demonstrate well developed testing plans with clear objectives, parameters and success criteria.
The applicant should demonstrate the intention and ability to deploy the solution on a broader scale. To this effect the applicant should share a proposed sandbox exit and transition strategy.
The applicant shall ensure that the specified eligibility criteria are satisfied while submitting the application as per Annexure-1 to SEBI. The application form shall be signed by the Chief Executive Officer (CEO) of the applicant or officer duly authorized by the CEO or compliance officer.
At the “Application Stage”, SEBI shall review the application and inform of its potential suitability for a sandbox within 30 working days from the submission of the complete application.
At the “Evaluation Stage”, SEBI shall work with the applicant to determine the specific regulatory requirements and conditions... If the applicant is able and willing to meet the proposed regulatory requirements and conditions, the applicant shall be granted permission to develop and test the proposed FinTech innovation(s) in the sandbox.
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Source: SecMarx — Framework for Regulatory Sandbox. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.