Fintech companies participating in the Reserve Bank of India’s (RBI) proposed regulatory sandbox (RS) will be required to take insurance cover of an adequate amount and period for the protection of consumers, said the central bank.
Sandbox entities shall be required to take liability/indemnity insurance of an adequate amount and period to safeguard the interest of the customers, said the RBI in the final ‘Enabling Framework for Regulatory Sandbox’.
The policy cover shall begin with the start of the testing stage and end three months after the exit of the sandbox entity from the RS, the document added.
The sandbox entity will have to ensure that any existing obligations to the customers of the financial service under experimentation are fulfilled or addressed before exiting or discontinuing the RS.
Among its risks and limitation, it further warned of potentiality for some legal issues arising, such as those relating to consumer losses in case of failed experimentation. The RBI or its RS cannot provide any legal waivers, it added.
In April, the central bank had announced that a regulatory sandbox where startups could test new financial products in real-time with limited regulations.
The RBI had placed the draft ‘Enabling Framework for Regulatory Sandbox’ inviting stakeholders to offer their comments. It received around 381 para-wise comments from 69 stakeholders, including FinTech entities, banks, multilateral agencies, industry associations, payment aggregators, audit & legal firms, government departments and individuals.
A sandbox is an enabling infrastructure or interface, which is made available to an outside innovator or fintech by a bank so that they can test their product and services in real-time. The proposed financial service to be launched under the RS should include new or emerging technology, or use of existing technology in an innovative way and should address a problem and bring benefits to consumers.
This live testing reduces the time to go to the market and also allows a room for failure without actually going for a commercial launch.
The objective of the RS is to foster responsible innovation in financial services, promote efficiency and bring benefit to consumers.
In May, market regulator Sebi and insurance regulator IRDAI had also announced initiatives to encourage startups in their segments by making data and systems available to them.