‘The use of FinTech services in India has to be consistent with the risks the financial system could bear. I think the ideal thing for RBI to do now is to create a sandbox kind of a structure, which would allow various innovations under the watchful eyes of the regulator.’
- N S Vishwanathan, DG, RBI
The pace of change in the financial services industry has been accelerating because of the technological advances that have caused paradigm shifts in the sector. The global Financial Technology (FinTech) industry attracted over the US $22 billion investment in 2015 and is growing exponentially. A number of tech start-ups have successfully challenged large incumbent financial institutions in various segments of their business, disrupting business models and taking market share. Regulators have cautiously welcomed this trend but have expressed concern regarding the reliability of the various technologies as well as the financial soundness of the FinTech companies (Regulatory sandbox framework, Central Bank of Bahrain). Globally, regulators face the challenge of nurturing innovation without over-regulating but at the same time protecting consumer interests. To overcome this challenge, many countries have adopted a ‘Regulatory Sandbox’ based approach where the regulator works closely with emerging FinTech firms as well as existing financial services players in a relatively relaxed regulatory environment and gathers data from this sandbox to develop suitable regulations. The sandbox is an experimental environment where the regulator may tweak regulations, assess the impact of regulatory changes and then use this data for final policymaking (Deloitte, Confederation of Indian Industry, 2017).
What is Regulatory Sandbox?
The term regulatory sandbox can be etymologically derived from computer programming, where it referred to the practice of running a potentially unsafe code in an isolated environment to understand the negative impact of such a code.
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