RBI’s regulatory sandbox allows testing blockchain applications but not cryptocurrencies and ICOs

The Reserve Bank of India (RBI) has become the latest central banking authority to establish a fintech regulatory sandbox.

In a report dated April 18, the RBI said that it formed an inter-regulatory Working Group (WG) in July 2016 to look into various aspects of FinTech and its implications. After nearly three years, the report of the WG was released on February 08, 2018 for public comments.

Among other things, the WG recommended introducing “an appropriate framework for a regulatory sandbox (RS) within a well-defined space and duration where the financial sector regulator will provide the requisite regulatory guidance, so as to increase efficiency, manage risks and create new opportunities for consumers.”

“The RS provides an environment to innovative technology-led entities for limited-scale testing of a new product or service that may or may not involve some relaxation in a regulatory requirement before a wider-scale launch,” it said.

The report further puts forth an indicative list of innovative products/services/technology which could be considered for testing under the sandbox and those which would be excluded.

The sandbox would allow testing of various applications of blockchain technologies and smart contracts, artificial intelligence, and more. However, it would not allow testing any products/services/technology involving cryptocurrency services, trading/investing/settling in crypto assets, and Initial Coin Offerings, (ICOs), among others.

Companies selected into the sandbox cohorts would be able to “test the product’s viability without the need for a larger and more expensive roll-out.”

Earlier this year, reports suggested that the Securities and Exchange Board of India (SEBI) is considering setting up a regulatory sandbox to facilitate regulated use of innovative technologies such as blockchain and artificial intelligence in the securities market.

Regulatory authorities all across the globe are increasingly adopting the sandbox approach to foster fintech innovation. This includes the UK, Singapore, Isle of Man, and more recently South Korea. Other countries, such as Malta and Gibraltar, have implemented blockchain-friendly laws.