According to RBI’s SOP issued on October 12, 2022, “To facilitate testing of innovative products/services falling under the regulatory purview of more than one financial sector regulator such as RBI, SEBI, IRDAI, IFSCA and PFRDA, a standard operating The Procedure (SOP) for IORS has been prepared by the Inter-Regulatory Technical Group on Fintech (IRTG on Fintech). The Reserve Bank of India has placed the SOP for IORS on its website today.”
Here’s a look at what is RBI’s standard operating procedure for inter-operable regulatory sandbox states.
background
The Inter-Regulatory Technical Group on Fintech (IRTG on Fintech) has been constituted under? auspices Sub-committee of the Financial Stability and Development Council (FSDC-SC) for inter-regulatory coordination between financial sector regulators on issues related to fintech, including the Inter-Regulatory Regulatory Sandbox (IoRS). The group is headed by the Chief General Manager, Department of Fintech, RBI, with representations from other financial sector regulators, SEBI, IRDAI, IFSCA and PFRDA and one representative each from DEA and MEITE.
One of the mandates of the group was to suggest models on the IORS mechanism for hybrid products/services covered by more than one regulator, as well as to prepare Standard Operating Procedures (SOPs) for the same. The SOP for IoRS is given below:
2. IORS – A Process
IoRS is a mechanism to facilitate testing of innovative hybrid financial products/services falling under the regulatory purview of more than one financial sector regulator. To eliminate the need for innovators, a common window has been provided to engage with various regulators regarding their hybrid product.
3. IoRS. participants in
Financial regulators that are members of the IRTG on Fintech have agreed to participate in the IORS arrangement under the aegis of IRTG on FinTech.
4. Products/Services to be recruited in IORS
Financial products/service providers whose business model/activities/features fall under the purview of more than one financial sector regulator will be considered for testing under IoRS.
5. Governance
The Fintech Department of Reserve Bank of India will act as the nodal point for receiving applications under IORS and will be designated as ‘Coordination Group (CG)’ for IORS. All necessary secretarial assistance will be provided by him.
The application for IORS will be on ‘on tap basis’ in a prescribed application form. The RS framework of the regulator, under which the ‘Key Feature’ of the product is covered, will govern it as the ‘Principal Regulator (PR)’. The regulators under whose remittances features other than the core feature of the product fall would be ‘Associate Regulators (AR)’.
Two sets of factors will be considered or the dominant feature will be decided. First, the type of growth in existing products such as loans, deposits, capital market instruments, insurance, G-Sec instruments, pension products, etc., and secondly, the number of exemptions sought by the unit to be tested under IRS. The salient feature will be determined giving more weightage to the number of exemptions sought. Exemption, if required, will be considered by the PR/AR on a case-by-case basis and the decision to this effect will be binding and final.
Based on the salient features of the product, the eligibility criteria and net worth criteria applicable to the RS of the concerned regulator (PR) will be applicable to the applicant entity for participation in the IORS.
Based on the minimum eligibility criteria of the regulator, the remittance of which covers the key feature of the product, the Coordinating Group (CG) (Fintech, RBI) will conduct a preliminary scrutiny of the application and forward the same to the respective PRs and ARs. ) within which innovation falls.
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 shall coordinate with the AR(s) regarding the features of the product, which is covered by their dispatch.
If SEBI is AR, since the provisions of SEBI Act only allow SEBI registered entities to participate in their RS, unregistered applicants can enter into a Memorandum of Understanding or any other arrangement with a SEBI registered entity to participate in IORS .
Applications from Indian fintechs with global ambitions and foreign fintechs seeking entry into India will be sent to IFSCA for processing the proposals, as IFSCA will be the PR for all such applications.
The PR will reserve the right to accept the hybrid product/solution/innovation as per its RS framework and inform the applicant accordingly. The decision to this effect will also be communicated to the CG/IRTG on Fintech.
The AR will provide specific inputs, stipulating the parameters to be tested, boundary conditions, risks to be monitored, etc. with respect to the aspects covered under its dispatch.
The AR shall provide the inputs at the earliest but not later than 30 days after the reference is received from the PR.
The test design will be finalized by the PR in consultation with the AR.
Any coordination issues between PR and AR will be discussed and resolved at the IRTG on FinTech before the start of live testing under IRS to reach common views on regulatory behavior of innovative products, services and business models. The IRTG on Fintech will monitor the progress of the products being tested under the IORS in its subsequent meetings.
The product will be evaluated in accordance with the framework of the PR, which may also reflect the assessment by the AR while deciding on the suitability and viability of the product/services.
After successful exit from IoRS, the entity will approach the PR&AR(s) for authorization and seeking regulatory distribution before launching the product in the market. The decision of the concerned regulator will be binding on the entity.
The product being accepted and successfully exiting IORS will be published by the relevant regulator via press release, specifically indicating that it is under IRTG’s IORS on Fintech.