SEBI and IRDAI introduces Regulatory Innovative Sandbox Regulations
Financial sector regulators are taking a lot of initiatives to encourage startups in their segments by making data and systems available to them. Last month, RBI had announced administrative innovative sandbox regulations where startups could test out new financial products in real-time with limited regulations. Now, on Monday, i.e. 21st May 2019, insurance regulator IRDAI and stock market regulator SEBI also announced similar kind of initiatives.
Purpose of introducing Regulatory Sandbox
The purpose of introducing Sandbox Regulations is to:
- Provide financial technology firms and
unregulated market participants with an environment to test their new solutions
with markets data.
- The framework can be utilized by any entity that
intends to innovate on the products, services, and solutions for the securities
and commodities market in India.
- The entities would have access to markets data
but not live data to test their solutions.
- To create an ecosystem which promotes modernization
in the securities market
What is Innovation Sandbox?
Sandbox is a shared workspace to conceive, discover new subjects, expand
technologies and share knowledge. It is a framework to share market data with
financial technology firms to brainstorm and create innovative solutions for
SEBI will allow Fintech firms which are not registered with it to be a part of the sandbox. Fintech firms meeting SEBI criteria will have access to anonymous, historical data from exchanges, depositories and mutual funds.
Features and Structure of Innovation Sandbox Regulations
try to discuss the above categories in detail now:
Components includes Data Sets and Infrastructure. The most significant
components of an Innovation Sandbox is access to securities market-related
data, which will allow participant to test and improve their FinTech solution. The
datasets given to the market will be chronological and anonymized. Further, it will
contain data related to periodic market events. But, live data will not be made
accessible to participants.
Access to such datasets will be provided in a phased manner, starting with a limited
amount of data and based on validations, more exhaustive data would be provided
to participants. Such data sets will be shared through APIs (application
A steering committee comprising of market infrastructure institutions
(MIIs) and qualified registrar and share transfer agents will develop the
operating guidelines for the framework, and will also include members from Fintech
startups, academia, angel investors and the likes.
the legal components of Innovation Sandbox include:
- Legally Robust
- Intellectual Property Rights (IPR) Protection
- Prevention of Data Misuse
- Restriction from Fraudulent Purposes
- Assessment of Application received for
participating in the Innovation Sandbox, and further rule-based self-assessment
process shall be formalized to allow the applicants automatic entry into
- Secondly, a governance body shall be formed
constituting of representatives from Stock Exchanges, Depositories and
Qualified Registrar and Share Transfer Agents who will supervise the operations
of the Innovation Sandbox for the benefit of its contributors, users and
securities market. This governing body will ensure that the sandbox fulfils its
- An operational team should be formed for day to
day activities of the Innovation Sandbox.
- Rules of participation shall be framed to
regulate the rights and responsibilities of the participant for Innovation
Sandbox and other participants
- A grievance redressal process shall be
formulated to deal with grievances of any applicant in the Innovation Sandbox
Interface for Innovation Sandbox
The complete lifecycle of Innovation Sandbox shall be digital to ensure transparency and efficiency.
Eligibility Criteria for inclusion into
- Any entity who wants to innovate on the
products, services or solutions for the securities and commodities markets in
- The applicant should have a authentic need for
testing the solution using the resources available in the Innovation Sandbox
- The applicant should be able to claim that the
solution cannot be adequately developed without testing in the Innovation
- The applicant should have the necessary capital to
support testing in the sandbox
- Applicant should be able to describe their post
- The solution should have qualities that could offer
direct benefits to consumers, capital market and the Indian economy at large.
- The applicant is required to present a cyber-security
compliance certificate as per SEBI’s Cyber Security Guidelines.
of SEBI’s Innovation Sandbox
- Innovation Sandbox will help in showcasing the working prototype of the solution, which may help FinTech firms secure more funding.
- It will help in assessing compliance and readiness with SEBI’s regulations.
- Developers can explore industry challenges and use cases for innovative technologies linked to the information of new solutions across the industry.
Also Read: RBI Releases Draft Framework for Regulatory Sandbox to Create Innovation Test Lab for Fintech
Comments of IRDAI on Innovative Sandbox Regulations
- IRDAI said that with this approach, Fintech’s would
have a secure and favorable space to research and where the cost of failure can
- Further, IRDAI said that the sandbox would help
to improve growth in the fintech space and increase the speed of new solutions
are developed with help from the regulator and industry experts on meeting
regulatory requirements and ensuring policyholder protection.
The Sandbox Regulations will help entities to test their innovations effectively before introducing them in a live environment and will further create an ecosystem which will promote innovations in the stock market.