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The capital market has been an early adopter of technology. SEBI believes that encouraging the adoption and usage of financial technology (‘FinTech’) would profoundly impact the securities market’s development. FinTech will act as a catalyst to develop and maintain an efficient, transparent, fair, and inclusive securities market ecosystem. Intending to operationalize the endeavour, SEBI had proposed the concept of “Innovation Sandbox.”
It is to create an ecosystem that promotes innovation in the securities market. SEBI has felt that start-ups, including FinTech firms, must have access to market-related data and test environments otherwise not readily available to test the innovations effectively before introducing such innovations in a live environment.
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Innovation Sandbox facilitates access to an environment provided by Enabling Organizations such as Stock Exchanges, Depositories, and (QRTAs) Qualified Registrar and Share Transfer Agent wherein innovators would be able to test their innovations in isolation from the live market. It would be used for offline testing of the proposed solution of an applicant.
For driving the Innovation Sandbox, a steering committee has been formed comprising the enabling organizations’ representatives.
Some of the responsibilities of this committee are as follows:
On review of the existing framework, to encourage innovation and make it even more convenient for participation in the Innovation Sandbox, the objective & eligibility criteria of the Innovation Sandbox have been revised with graded entry norms.
For promoting innovation both in terms of new products and services as well as new ways of delivering existing products and services to:
It would be achieved by giving access to both test data and test environment to Financial Institutions, startups, FinTech firms, including entities not regulated by SEBI, including individuals.
The details of the stages are as mentioned below:
The eligibility criteria are as follows:
An applicant is required to be an Indian Citizen or entity registered in India. (KYC) Know Your Customers norms must be in line with the Central Know Your Customers Registry (CKYCR).
The KYC requirements comprising of the following:
An applicant will be eligible for Stage-II after completing minimum of 60 days in the Stage-I of Innovation Sandbox testing. Applicants must make a presentation before the steering committee to evaluate and enter Stage-II either physically or through virtual mode.
The Stage-II criteria are as follows:
The components & structure of the Innovation Sandbox are broadly classified into the following categories:
There are two design components:
It is envisaged that there shall be multiple applications with similar ideas in the innovation sandbox. Hence, no claim for the IPR must be applicable in the Innovation Sandbox.
There are two administrative components:
Applications received for participating in an Innovation Sandbox will be assessed by the steering committee. It would follow graded eligibility criteria.
Enabling organizations will endeavour to make the entire sandbox participation lifecycle (tracking, applying, onboarding, reporting, monitoring, etc.) completely digital to ensure transparency & efficiency.
The circular has been issued while exercising the powers conferred under Section 11 (1) of the SEBI Act, 1992 & Section 19 of the Depositories Act, 1996 to protect investors’ interests in securities and promote the development and to regulate securities market.
Read our article: Analysis of SEBI Relaxations relating to procedural matters – Issues & Listing
Soumya has done LLB (Hons) and has a 2+years experience in writing. Her main interest is in reading judgments, new enactments and amendments taking around in law. She always strives to bring the best to work that she does.
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