Mumbai: A working group formed by the Reserve Bank of India (RBI) Thursday recommended introducing a “regulatory sandbox" to foster financial technology innovation in India and a standalone data protection law in the country.
The inter-regulatory working group set up in July 2016 recommended Institute for Development and Research in Banking Technology (IDRBT), established by the RBI, in collaboration with the central bank, can maintain regulatory sandbox. The panel was set up to study regulatory issues relating to fintech and digital banking.
Commonly referred as a safe zone to test fintech innovation, sandbox is a hub where regulators enable limited roll-out of new products to customers. This is done to ensure that new product does not pose any risk to consumers or to the stability of the sector.
“An appropriate framework may be introduced for “regulatory sandbox/innovation hub" within a well-defined space and duration where financial sector regulators will provide the requisite regulatory support, so as to increase efficiency, manage risks and create new opportunities for consumers in Indian context similar to other regulatory jurisdictions," the group said in its report, published on the RBI website on Thursday.
“Today, as far as small companies are concerned, the access to APIs (application programming interface) of banks is a big problem. A regulatory sandbox effectively creates a level playing field even for smaller fintech companies. Lot more innovations will happen because it will be a controlled environment with accessibility to everyone," said Jitendra Gupta, managing director of PayU Payments India.
He added that intellectual properties of these fintech companies will also be protected because it will be visible to everyone. “The concept of sandbox regulation is on the similar lines of Singapore Authority, European nations and even Middle East," said Gupta.
The panel also suggested the need for a self-regulatory body for fintech companies and a standalone data protection law in India.
“Currently, there are clauses in various laws. However, there is no data protection law as of now. The new law in data protection is set to come in March-end. Right now, there is a white paper on data protection under the chairmanship of (former Supreme Court) Justice B.N. Srikrishna, to which a lot of companies have already given their comments," said Parag Mathur, general counsel and head of compliance, Bankbazaar.com.
The report said that between 2013 and 2014, the fintech industry in India grew 282% to reach $450 million in 2015. Currently, around 400 such firms are operating in the country and their investments are expected to grow by 170% by 2020.
The government’s push for digital payments and the Startup India Initiative has also led to the growth of the sector. Additionally, banks have been collaborating with fintech companies to enhance customer offering and business base through cost effective methods.
The group also recommended that financial sector regulators must engage with fictech entities to develop appropriate regulatory response and re-align existing supervisory framework. It has called for the need to develop deeper understanding of fintech products as well as increase awareness among consumers.