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TMI BlogRevised Framework for Regulatory SandboxX X X X Extracts X X X X X X X X Extracts X X X X ..... n 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, Mridusmita Goswami General Manager Information Technology Department Phone: +91-022-26449504 Email: [email protected] Annexure A- Standard Operating Procedure Regulatory Sandbox 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 apply either on its own or in partnership with any other entity. In either scenarios, the registered market participant shall be treated as the principal applicant, and shall be solely responsible for testing of the solution. STAGES OF SANDBOX TESTING 2. The details of the stages of sandbox testing are as below: 2.1. Stage I : SEBI will approve the limited set of users as proposed by the applicant for testing in Stage-I. During the stage-I testing, applicant shall use limited and identified set of users with maximum cap on users based on the requirement of the applicant duly approved by SEBI on case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riate safeguards to manage the risks and contain the consequences of failure. 4. An applicant is eligible for Stage-II after completing minimum 90 days in the Regulatory Sandbox testing. 5. Stage- II Eligibility Criteria: The Stage-II criteria shall be as follows: 5.1 . Adequate Progress: The applicant should demonstrate that they have achieved adequate progress and are on track with their testing plan. 5.2. Compliance to the objective of the Regulatory Sandbox: The applicant should provide justification that they are complying with the objective of the Regulatory Sandbox. 5.3. Reviews of the Risks observed during Stage-I testing: The applicant should submit the details of the risks observed during stage-I testing along with the steps taken to mitigate those risks. 5.4. Safeguards to mitigate potential risks: The applicant should provide the list of appropriate safeguards to manage the risks and contain the consequences of failure. 5.5. Users feedback: The applicant should present summary of the feedback received from the users participated during stage-I of the Regulatory Sandbox testing highlighting the adverse feedbacks and steps taken to address ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with a token fees of ₹ 10,000. 11. SEBI shall review and approve the application and allot a registration number to the applicant with the validity of maximum of 12 months. 12. Once registration is allotted to the applicant, the application shall proceed towards the Stage- I Testing Stage . The applicant shall disclose to its users that the solution shall operate in a sandbox and the potential key risks associated with the solution. The applicant is also required to obtain the users positive consent that they have read and understood the risks before any transactions separately for both Stage-I and Stage-II. 13. During the Stage-I testing stage, the applicant shall take prior approval from SEBI to effect any material changes to the solution. 14. The applicant shall assign a contact person to coordinate with a designated officer of SEBI. 15. An applicant is eligible for Stage-II after completing minimum three (3) months in the Regulatory Sandbox testing. 16. If applicant wishes to apply for Stage-II, the applicant should submit the application as per Annexure-2 to SEBI. 17. The application shall be evaluated on the eligibility criteria mentioned for S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ully understand and accept the attendant risks 22.1.13. Intent and feasibility to deploy the proposed Innovative solution post testing 22.1.14. The withdrawal strategy (in the event the tests are not successful) including for participating users 22.1.15. Any other factors considered relevant by SEBI 22.2. STAGE- II Evaluation Criteria: 22.2.1. Applicant has achieved adequate progress in stage I testing 22.2.2. Review of the risks observed during stage I testing 22.2.3. Review of the steps taken to mitigate the risks 22.2.4. Appropriate safeguards to manage the risks and contain the consequences of failure 22.2.5. User feedback during stage-I testing 22.2.6. Intent and feasibility to deploy the proposed Innovative solution post testing 22.2.7. The deployment and monitoring strategy post testing (in the event the tests are deemed successful) or the withdrawal strategy including for participating users (in the event the tests are not successful) REGULATORY EXEMPTIONS 23. To encourage innovation with minimal regulatory burden, SEBI shall consider exemptions/ relaxations, if any, which could be either in the form of a comprehensive exemption fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... steps taken to address the key issues identified above iv) Any other information relevant to SEBI. 31. The sandbox applicants must submit a final report containing the following information to SEBI within 30 calendar days from the expiry of the Stage-II testing period: i) Key outcomes, key performance indicators against agreed measures for the success or failure of the test and findings of the test ii) A full account of all incident reports and resolution of user complaints, if any iii) Key learnings from the test 32. The monthly and final reports must be confirmed by the Chief Executive Officer (CEO) of the applicant or officer duly authorized by the CEO or the compliance officer. 33. The sandbox applicant must ensure that proper records of the conducted tests are maintained for review by SEBI. Further, the applicant shall also maintain such records for a period of three (3) years from the date of completion of testing/ exit from the sandbox. OBLIGATIONS OF THE APPLICANT TOWARDS THE USER 34. The applicant shall ensure that before signing up, the user has read the full documentation provided by the applicant and confirm that he/she is aware of the risk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t needs to mention what regulatory changes are expected to enable the applicant to launch their solution in the live market post completion of the sandbox testing. 38.2. Withdrawal Strategy : The applicant shall provide withdrawal strategy which shall be applicable in the event the tests are not successful or applicant wants to discontinue the sandbox testing or SEBI revokes the approval to participate in the sandbox as per the Revocation of the Approval clause of this document. The withdrawal strategy shall include following: 38.2.1. Process of notification to the existing users regarding the termination of the sandbox testing and informing them on the necessary steps to be taken. 38.2.2. Settling/ transferring etc. of the current position of the existing users within 15 days of the initiation of the withdrawal strategy, as may be applicable. 38.2.3. Refund of any dues to the existing users within 15 days of the initiation of the withdrawal strategy. 39. At the end of the Stage-II testing period, the permission granted to the applicant as well as the legal and regulatory requirements relaxed by SEBI, shall expire. 40. Upon completion of testing, i) SEBI sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ramework facilitates the following: i) Undermining of Know Your Customer (KYC) principles ii) Violation of users /investors privacy iii) Promotion/ facilitation of sale of fraudulent/illegal products or services iv) Promotion/ facilitation of mis-selling of products or services v) Violation of Anti-Money Laundering (AML) norms vi) Creation of risk to market integrity vii) Theft of intellectual property viii) Not in the interest of users/ investors or securities market 46. If SEBI proposes to revoke the approval granted to an applicant to participate in the sandbox, then SEBI shall: i. immediately suspend trials on new users i.e. not permitting new users to sign up for using/ testing the solution and give a notice to the applicant of the intention of SEBI to revoke the approval detailing the grounds for such an intention; ii. provide an opportunity to the applicant to respond to SEBI on the grounds for revocation; and iii. dispose of the notice through a speaking order. 47. Notwithstanding anything contained in paragraph 46 above, where SEBI is satisfied that in the interest of the applicant, its users or the securities market, revocation is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.3 Is the entity s business is already active abroad? If yes then please provide details. 2.4 Current orders or proceedings against the entity in India and abroad (if any) 3. About the proposed solution Sr. No. Description Response 3.1 Provide a short summary of the proposed solution to be tested in the sandbox including but not limited to: a. Objective of the proposed Innovative solution or the statement of purpose Key benefits to the users and markets Business Model, including asset deployment and sources of revenue Target users Compliance obligations Time period for testing Compliance to the objective of the Regulatory Sandbox 3.2 Summary of the technical solution including but not limited to: Technical architecture Usage of Artificial Intelligence and Machine Learning, if any Cyber resilience: VAPT results, if any Certific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulators 5.1 Legal and regulatory status (registration, licensing, authorization, approval, recognition etc.) 5.2 Legal opinion sought on the proposed Innovative solution, if any 5.3 Relevant license to deploy the proposed solution in the production environment? Please provide the details 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 withdrawal strategy if the deployed solution turns unviable and the tests are unsuccessful including action plan for participating users who had joined the sandbox 7. Relaxati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.6 Email id 1.7 Date of Submission of Application Form for STAGE-I 2. About the proposed solution Sr. No. Description Response 2.1 Please submit the details of the risks observed during Stage-I testing along with steps taken to mitigate those risks 2.2 Please provide the adverse feedback received from the users participated during Stage-I and steps taken to address the same 3. Sandbox readiness during Stage-II Sr. No. Description Response 3.1 The test criteria and expected outcomes 3.2 Describe the additional use case that will be tested in the sandbox based on the learning from Stage-I testing 3.3 Define success for a test and the Key P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and assets by intermediaries beyond the existing regulations b. Requirements that may merit relaxation i. Net worth of applicant ii. Financial soundness of applicant iii. Track record of applicant iv. Registration fees v. SEBI Guidelines, such as technology risk management guidelines and outsourcing guidelines A NNEXURE -4 USER CONSENT FORM FOR PARTICIPATING IN THE REGULATORY SANDBOX Organization Name [Sandbox Applicant]: ______________________ Name of the user participating in the Sandbox testing: _______________________ 1. I hereby agree to participate in the sandbox testing conducted by the abovementioned sandbox applicant. 2. I have been fully informed about the purpose of the test. 3. I have read the full documentation provided by the sandbox applicant and confirm that I am aware of the risks of using the solution and know that I may lose my investment. 4. I am also aware that my participation in the testing will be only till the approved duration of the sandbox testing and SEBI may revoke approval to participate sandbox testing as per Revocation of the Approval clause of the Standard Operating Procedure of the Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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