India Mulling “Regulatory Sandbox” for Blockchain, AI Development

March 14, 2019

The Securities and Exchange Board of India (SEBI) is considering a ‘regulatory sandbox’ mechanism for greater and well-regulated use of emerging innovations – including blockchain and artificial intelligence – in the securities markets.

The Indian securities regulator is of the opinion that the application of emerging technologies in use cases such as settlements, security systems for intermediaries and market infrastructure institutions, and complaints resolution could be better achieved through the sandbox approach. Regulators in other major financial markets either have regulatory sandboxes in place or are in the process of doing so, in order to further fintech development and adoption.

For instance, countries like the United Kingdom and Singapore have devised sandbox guidelines to encourage and allow for the experimentation new technology solutions to deliver better financial products and services, as well as provide innovators with support to navigate the regulatory system and promote competition in the interest of consumers. Other nations like Gibraltar and Malta also have blockchain-friendly laws in place.

In South Korea, the Financial Services Commission announced that it will introduce a financial regulatory sandbox in April, after lawmakers passed the Financial Innovation Support Act. The law is expected to lay a statutory foundation for a sandbox mechanism.

In the United States, the Treasury Department in 2018 made more than 80 recommendations for the efficient and responsible use of consumer financial data, and called for the modernizing of financial activities and the establishment of a regulatory sandbox to streamline innovations.    

In the United Kingdom, the country’s Financial Conduct Authority (FCA), in collaboration with 11 financial regulators and organizations around the globe, formed the Global Financial Innovation Network last year, which aims to provide a platform for innovative firms to better communicate and interact with regulators and facilitate cooperation on financial services and related innovations.

A regulatory sandbox is a regulatory approach, typically summarized in writing and published, that allows live, time-bound testing of innovations under a regulator’s oversight. It creates a conducive and contained space, where established institutions and startups alike can experiment with innovations at the edge or outside of the existing regulatory framework.

The first regulatory sandbox was launched in 2015 in the United Kingdom and generated great interest from regulators and innovators around the world.


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