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TMI BlogFramework for Regulatory SandboxX X X X Extracts X X X X X X X X Extracts X X X X ..... ted time frame. These features shall be fortified with necessary safeguards for investor protection and risk mitigation. 4. The guidelines pertaining to the functioning of the Regulatory Sandbox are provided at Annexure A. This circular is being issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992 and Section 19 of the Depositories Act, 1996 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. Yours faithfully, Bithin Mahanta Deputy General Manager Division of Technology & Cyber Security Market Regulation Department-1 Phone: +91-022-26449634 Email: [email protected] Annexure A APPLICABILITY 1. All entities registered with SEBI under section 12 of the SEBI Act 1992, shall be eligible for testing in the regulatory sandbox. The entity may either on its own or engage the services of a FinTech firm. In either scenarios, the registered market participant shall be treated as the principal applicant, and shall be solely responsible for testing of the solution. ELIGIBILITY CRITERIA FOR THE PROJECT 2. The eligibility criteria shall be as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the sandbox application, and during the testing phase. 5. At the "Application Stage", SEBI shall review the application and inform of its potential suitability for a sandbox within 30 working days from the submission of the complete application. SEBI may issue guidance to the applicant according to the specific characteristics and risks associated with the proposed solution. SEBI may also consult its Committee on Financial and Regulatory Technologies (CFRT), if necessary, to evaluate the application. 6. At the "Evaluation Stage", SEBI shall work with the applicant to determine the specific regulatory requirements and conditions (including test parameters and control boundaries) to be applied to the proposed solution in question. The applicant shall then assess if it is able to meet these requirements. If the applicant is able and willing to meet the proposed regulatory requirements and conditions, the applicant shall be granted permission to develop and test the proposed FinTech innovation(s) in the sandbox. 7. Upon approval, the application shall proceed towards the "Testing Stage". The participant shall disclose to its users that the solution shall operate in a sandbo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehensive exemption from certain regulatory requirements or selective exemptions on a case-by-case basis, depending on the FinTech solution to be tested. 14.Within the overarching principles of market integrity and investor protection, no exemptions would be granted from the extant investor protection framework, Know-Your-Customer (KYC) and Anti-Money Laundering (AML) rules. 15. Entities desirous of participating in sandbox shall make an application, including exemption / relaxation being sought from relevant provisions of the applicable regulatory framework. 16. The registration granted by SEBI to all entities registered with SEBI under Section 12 of the SEBI Act, 1992 is activity based. An entity which is registered with SEBI for a particular activity is authorized to carry out activity in that domain. In order to enable the cross domain testing of FinTech solutions, an existing registered entity would be required to first obtain a limited certificate of registration for the category of intermediary for which it seeks to test the FinTech solution(s).This concept of limited registration shall facilitate the entities to operate in a Regulatory Sandbox without being subjected t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the applicant as well as the legal and regulatory requirements relaxed by SEBI, shall expire. 26. Upon completion of testing, i) SEBI shall decide whether to permit the FinTech innovation to be introduced in the market on a wider scale. Where allowed, participants intending to carry out regulated businesses shall be assessed based on applicable licensing, approval and registration criteria under various SEBI regulations, as the case may be. OR ii) The applicant may employ an exit strategy. OR iii) The applicant may request for an extension period to continue testing. 27. The applicant may exit the sandbox on its own by giving a prior notice to SEBI, in writing, of its intention to exit the sandbox. 28. The applicant shall ensure that any existing obligation to the users of the FinTech innovation(s) in the sandbox are completely fulfilled or addressed before exiting the sandbox or before discontinuing the sandbox testing. 29. The applicant is required to maintain records of acknowledgement of all its users stating that all the obligations towards the users have been met. These records shall be maintained by the applicant for a period of five years from the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate in the sandbox. 34. Upon revocation of an approval, the participant must: i) Immediately implement its exit plan to cease the provision of the product, process, service or solution to new and existing users; ii) Notify its users about the cessation and their rights to grievance redressal, as applicable; iii) Comply with obligations imposed by SEBI to dispose of all confidential information including user's personal information collected over the duration of the testing; iv) Compensate any users who had suffered financial losses arising from the test in accordance with the safeguards submitted by the participant; v) Submit a report to SEBI on the actions taken, within 30 days from the revocation; vi) Comply with any other directions given by SEBI. ANNEXURE 1 REGULATORY SANDBOX APPLICATION FORM 1. Applicant's Information Sr. No. Description Response 1.1 Name of the Organization 1.2 SEBI Registration no. 1.3 Name of the Authorized Representative 1.4 Designation 1.5 Contact No 1.6 Email id 2. Details of the FinTech firms involved, if any Sr. No. Description Response 2.1 Provide a brief description of the FinTech firm and its core ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /has consent been obtained g. Arrangements to limit loss if applicable e.g. Margin, stop loss thresholds etc. h. User compensation if any i. Value at risk per user j. Transaction thresholds per user 4.7 Risk assessment and mitigation options including but not limited to: a. Failure of sandbox testing b. Financial loss to the customers c. Cyber attack d. AML and terrorism financing 4.8 Any instance of a legal and regulatory non-compliance for any other regulator during the sandbox testing 5. Legal and Regulatory Assessment: other regulators 5.1 Legal and regulatory status (registration, licensing, authorization, approval, recognition etc.) 5.1 5.2 Legal opinion sought on the proposed FinTech solution, if any 5.2 5.3 Relevant license to deploy the proposed solution in the production environment? Please provide the details 5.3 6. Deployment post-testing 6.1 Describe how the regulatory requirements will be met post successful sandbox testing 6.2 Please provide a pan-India deployment strategy, post successful sandbox testing 6.3 Please provide a clear strategy to monitor the outcomes in the live scenario 6.4 Please provide exit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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