The Reserve Bank of India (RBI) on Wednesday said the Inter-Regulatory Technical Group on FinTech (IRTG on FinTech) has put in place a common window under the system of Inter-operable Regulatory Sandbox (IoRS) to engage with different regulators regarding their hybrid products.
According to the RBI, financial products and service providers whose business models, activities and features fall within the remit of more than one financial sector regulator, will be considered for the testing under IoRS. The FinTech Department of RBI will act as nodal point for receiving applications under IoRS and will be designated as ‘Coordination Group (CG)’ for IoRS.
IRTG has been constituted under the aegis of the Sub-Committee of the Financial Stability and Development Council (FSDC-SC) for inter-regulatory co-ordination among the financial sector regulators on FinTech-related issues including IoRS.
“The application for IoRS will be on ‘on tap basis’. The framework of the regulator under whose remit the ‘dominant feature’ of the product falls, will govern it as ‘Principal Regulator (PR)’. The regulator under whose remit the other features apart from the dominant feature of the product fall will be the ‘Associate Regulator (AR)’
The RBI said two sets of factors would be considered or deciding the dominant feature. Firstly, the type of enhancement to the existing products like loans, deposits, capital market instruments, insurance, G-sec instruments and pension products, and secondly, the number of relaxations sought by the entity for undertaking the test under the IoRS. “The dominant feature will be decided with greater weightage to the number of relaxations sought,” it said.
The relaxation, if warranted, will be considered by the PR or the AR on a case-to-case basis and a decision to that effect will be binding and final,” the RBI said.
Based on the dominant features of the product, the eligibility criteria and networth criteria as applicable for the RS of the concerned regulator (PR) will be applicable to the applicant entity for participation in the IoRS, it said.
“Based on the minimum eligibility criteria of the regulator under whose remit the dominant feature of the product falls, the Coordination Group (CG) (FinTech, RBI) will conduct preliminary scrutiny of the application and forward the same to the concerned PR and AR(s) under whose purview the innovation falls,” the RBI said.
In order to keep the IoRS process simple and non-disruptive, detailed scrutiny of the application will be done by the PR based on its own framework. The PR will co-ordinate with AR(s), regarding the features of the product, which falls under their remit, it said.
In case SEBI is the AR, since the provisions of the SEBI Act allows only SEBI registered entities to participate in their RS, the unregistered applicant may get into a MoU or any other arrangement with a SEBI registered entity to participate in IoRS.
“The applications from Indian FinTechs having global ambition and foreign FinTechs seeking entry to India, will be referred to IFSCA, for taking forward the proposals, as IFSCA will be the PR for all such applications,” the RBI said.
The PR will reserve the right of admissibility of the hybrid product, solution and innovation as per its RS framework and accordingly communicate to the applicant. The decision to that effect shall also be communicated to CG and IRTG on FinTech, for information, the RBI said.
“AR will provide specific inputs, stipulate conditions regarding aspects falling under its remit for parameters to be tested, boundary conditions, risks to be monitored, etc. The AR will provide inputs at the earliest but not later than 30 days from receipt of reference from the PR,” it said.
The test design will be finalised by the PR in consultation with the AR.
Any co-ordination issue between PR and AR to reach common views on the regulatory treatment of innovative products, services and business models will be discussed and sorted out in the IRTG on FinTech before initiation of the live testing under IoRS. The IRTG on FinTech in its subsequent meetings will monitor the progress of the products being tested under IoRS, the RBI saidAfter successful exit from the IoRS, the entity will approach the PR and the AR for authorisation and for seeking regulatory dispensation before launching the product in the market. The decision of the respective regulator will be binding on the entity.