
A recently created financial services authority in India has set out the framework for a regulatory sandbox as it looks to establish a ‘world-class’ fintech hub.
The sandbox is being run by the International Financial Services Centres Authority (IFSCA), which itself was only created in April.
IFSCA is located in Gujarat International Finance Tec-City – known as GIFT City – near Gandhinagar, the capital of Gujarat state. GIFT City is a greenfield development, backed by the national and state government, being promoted as a ‘smart city’ and new ‘financial and technology gateway of India for the world’.
A regulatory sandbox is a trial-and-error testing space in which fintech projects can be undertaken with real customers without the risk of infringing financial regulation. Examples of sandboxes helping to drive fintech growth include the UK’s Financial Conduct Authority (FCA)’s regulatory sandbox.
The IFSCA has announced that, if successful in applying to enter the GIFT City sandbox, entities ‘shall be granted certain facilities and flexibilities to experiment with innovative fintech solutions in a live environment with a limited set of real customers for a limited timeframe’. It added that ‘these features shall be fortified with necessary safeguards for investor protection and risk mitigation’.
‘Innovation Sandbox’ also planned
All entities operating in the capital markets, banking, insurance and pension sectors, as well as individuals and start-ups from India and the 38 other Financial Action Task Force (FATF)-compliant jurisdictions, can apply to participate. The FATF is a Paris-headquartered money laundering and terrorist financing watchdog.
The IFSCA has also proposed the creation of an ‘Innovation Sandbox’, which would be a testing environment in which fintech companies can test their solutions in isolation from the live market but using real market data.
Other regulators in India include the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority of India (IRDAI).
The creation of the IFSCA sandbox comes almost three years after the publication of a 78-page report by an RBI working group on fintech and digital banking that explored different countries’ approaches to sandboxes. Among the recommendations were the provision of an environment for developing fintech innovations and testing of applications/‘Application Programming Interfaces’ (APIs) – ‘open’ APIs are crucial to enable open banking; and the introduction of ‘an appropriate framework’ for a ‘regulatory sandbox/innovation hub’ similar to other regulatory jurisdictions.
Other sandboxes recently established in India include the Mumbai Fintech Hub initiative, set up a couple of years ago by the Maharashtra state government.
India’s government formed a steering committee in 2018 to examine the development of the country’s fintech space.
Global Government Fintech reported earlier this month that FCA had just opened the latest application process for its sandbox which, since its creation in 2016, has accepted six ‘cohorts’ of businesses. The FCA has also opened applications for organisations keen to participate in the pilot of a ‘digital sandbox’, which aims to support earlier-stage innovation where products and solutions are still in development.