Market watchdog Securities and Exchange Board of India (SEBI) has decided to allow live testing of new products, processes, services and business models for financial firms.
The regulatory sandbox regime will allow companies to test their solutions on select real customers for a specified period. In the beginning, all SEBI-registered entities will be eligible for testing within the regime.
“The registered entity shall be treated as the principal applicant, even if it uses the services of a fintech firm, and shall be solely responsible for testing of the solution in the sandbox,” SEBI said in a release after board meet on Monday.
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.
It aims to foster responsible innovation in financial services, promote efficiency and bring benefit to consumers.
The SEBI board also has considered the cross-domain approach for a regulatory sandbox, wherein a regulated entity shall be permitted to test solutions for activities for which it is not registered.
The market watchdog will grant limited registration for such testing, it added. Later, it may allow fintech firms that are not regulated by SEBI.
In May last year, market regulator and insurance regulator IRDAI had also announced initiatives to encourage startups in their segments by making data and systems available to them.
Besides, SEBI has also amended the regulatory framework for investment advisers to introduce a cap on the maximum fee such entities can charge to investors while segregating the advisory and distribution activities to minimise conflict of interest issues.
Individual Investment Adviser will not provide distribution services, SEBI said.
However, the SEBI did not specify the upper limit of fees. Meanwhile, in January, SEBI had proposed through a consultation paper to cap the fees at 2.5% of the assets under advice or a fixed fee of Rs 75,000 per year per family.
The market watchdog will also introduce enhanced eligibility criteria for registration as an investment advisor.