Markets

Regulatory sandbox: Watchdog may need to fine-tune certain proposals

KS Badri Narayanan Chennai | Updated on June 07, 2019 Published on June 07, 2019

SEBI must also maintain confidentiality at its end to protect proprietory rights

The recent guidelines proposed by the Securities and Exchange Board of India with respect to a regulatory sandbox for market participants to test out innovative ideas are a step in the right direction. Under the regulatory sandbox, SEBI will provide a live testing environment where new products, processes, services and business models can be deployed on a limited set of eligible customers for a specified period of time, with certain relaxations in extant SEBI regulations.

Though most of the guidelines that SEBI has put out on this idea are welcome, some of the proposals appear either difficult to follow or too restrictive for participants who are keen to explore new concepts. SEBI also needs experts who can handle and foresee the impact of the testing programmes under the regulatory sandbox that have the potential to cause disruption in the financial society.

The most difficult proposal to adhere to seems to be the one on risks. According to SEBI, the solution should have proper risk management strategy to incorporate appropriate safeguards to mitigate and control potential risks and contain the consequences, if any, of failure. This would be very difficult to gauge at the time of testing even by genuine participants. For instance, SEBI did not foresee the kind of disruption the co-location facility of the NSE (alleged to have favoured certain brokerages) has caused to the markets.

SEBI proposes that it would not allow a fintech solution that is similar to those that are already being offered in the market, unless the applicant can demonstrate that either an innovative (efficient alternative) technology is being used or that the same technology is used more efficiently (process efficiency). This can easily be checked and verified by the in-house experts of SEBI. SEBI also restricts applicants from deploying the fintech solution in India on a broader scale after exiting from the sandbox. This proposal may attract legal scrutiny, as it restricts individual rights.

Also, the regulator asked the applicant to demonstrate that the solution cannot be developed without relaxing certain regulations. Though this would be applicable on a case-by-case basis, the most important factor could be time taken to arrive at a conclusion. If SEBI defers a decision on a proposal for a long time, then it may not motivate participants. Besides, SEBI should also ensure confidentiality at its end on the entities and their proposals, which may be proprietory to them.

At the same time, it is good that SEBI has taken a strong stance that it would not extend any concessions on the confidentiality of customer information, fit and proper criteria, the handling of customer’s money and assets by intermediaries, prevention of money laundering rules and countering the financing of terrorism, risk checks and principles of KYC.

Published on June 07, 2019

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.