SEBI Approves Regulatory Sandbox As Testing Ground For New Business Models

Securities and Exchange Board of India (SEBI) has announced to approve regulatory sandbox for live testing of new products, services and business models by market players on select customers.

The regulatory sandbox is expected to drive new business models and technologies and be a support system for startups, particularly those in fintech. The sandbox is expected to be open for a specified period of time for each entity approved to enter it, with certain relaxations in the extant SEBI regulations and guidelines so that experiments can be created without disrupting live data.

The regulatory body will also permit a cross-domain approach for the sandbox through which a regulated entity will be permitted to test solutions even for those activities for which it is not registered.

“To begin with, all entities registered with SEBI under Section 12 of the SEBI Act 1992, shall be eligible for testing within the regulatory sandbox. An entity can participate on its own or use the services of a fintech firm,” SEBI said in a statement.

It also added that the registered entity shall be treated as the principal applicant, even if it uses the services of a fintech startup and shall be solely responsible for testing the solution in the sandbox. Further, the concept of limited registration shall facilitate the startups to operate in a regulatory sandbox without being subjected to the entire set of regulatory requirements to carry out that activity.

The startups not regulated by SEBI may also be allowed at a later stage. However, they will not be exempted from the existing investor protection framework, KYC and anti-money laundering rules.

To develop an efficient ecosystem, SEBI had formed a committee on financial and regulatory technologies with Aarin Capital partner TV Mohandas Pai as chairman and members from the startup industry and other experts. The idea was to form a framework for innovation sandbox through which fintech startups can access market-related data.

The regulatory sandbox has been established based on recommendations from the committee and provides a live testing environment where new solutions can be deployed on a limited set of eligible customers for a specified period of time with certain relaxations.

Meanwhile, SEBI has also partnered with eight IT companies to incorporate data analytics in its functioning to tackle discrepancies in trading markets of India. The regulatory body has shortlisted Infosys, Wipro, and IBM among others to prevent unethical practices such as insider trading and front running to occur on the trading platforms. Using data analytics, the project will predict market manipulations.