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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 ..... nterests 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 to case basis. These users will be required to provide positive consent including their understanding of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 the same. 5.6. Deployment post-testing: The applicant should present the intention and ability to deploy the solution on a broader scale. To this effect the applicant s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 Stage-II. Applicants may be required to make a presentation to the Regulatory Sandbox sub-committee either physical or through online mode. 18. If approved, applicant enters stage-II of Sandbox testing: Applicant sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 from certain regulatory requirements or selective exemptions on a case-by-case basis, depending on the Innovative solution to be tested. 24. Within the overarching principles of market integrity and investor protection, no exemptions would be granted from the extant investor protection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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 risks of using the solution and if asked by SEBI, submit the user consent form in the format prescribed in Annexure-4. 35. Right of the users participating in the sandbox: 35.1. The applicant shall ensure that users participating in the sandbox have the same protection rights as the ones participating in the live market ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 shall decide whether to permit the innovation to be introduced in the market on a wider scale. Where allowed, applicants 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. 41. The applicant may withdraw from the sandbox on its own by giving a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 necessary, it may revoke the approval immediately and issue a notice of revocation containing grounds for revocation, after the effective date of revocation. If the response of the applicant is found to be satisfactory, then SEBI may reinstate the approval and allow the applicant to continue participating in the Regulatory Sandbox. 48. Upon revocation of an approval, the applicant must: i) Immediately imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in test environment with test data is not enough and it is required to test the solution on real users on live environment 3.4 Awareness of similar offering in other countries or for other than securities/commodities markets 4. Sandbox readiness Sr. No. Description Response 4.1 Illustrate the aspect of the Innovative solution that will be tested 4.2 The test criteria and expected outcomes 4.3 Describe the use case that will be tested in the sandbox 4.4 Define success for a test and the Key Performance Indicators that will indicate a successful test 4.5 Probable start and end date of sandbox testing 4.6 Details of users including but not limited to: * Maximum number of participating users * Profile of users (retail, institutional, etc.) * Process for enrollment and acquisition of users * Requirement of KYC * User awareness required/conducted * Whether consent required /has consent been obtained * Arrangements to limit loss if applicable e.g. Margin, stop loss thresholds etc. * User compensation if any Value at risk per user Transaction thresholds per user 4.7 Risk assessment and mitigation options including but not limited to: * Failure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies. 5. Positive consent of users who would be participating in the sandbox testing as per the format prescribed in Annexure-4. ANNEXURE -2 REGULATORY SANDBOX APPLICATION FORM: STAGE -II 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 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 Performance Indicators that will indicate a successful test 3.4 Probable start and end date of sandbox testing 3.5 Details of users includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een 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 Regulatory Sandbox. 5. I understand that participation in this sandbox testing is voluntary. 6. I also confirm that the applicant has published and I have read and agreed to the grievance redressal mechanism to address any of the grievances which I might have, related to participating in the sandbox. 7. I note that certain exemptions have been given to the sandbox applicant under regulatory sandbox which limits my level of protection in the market. 8. I have read and understood the exit and withdrawal strategy proposed by the applicant which shall be applicable in the event of successful and unsuccessful testing. 9. I understand and agree that in the event of any claim for financial loss or dam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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