Realising the need to develop and maintain an efficient, fair and transparent securities market and to create an ecosystem which promotes innovation in the securities market, the Securities and Exchange Board of India (“SEBI”) has, issued the Framework for Innovation Sandbox (“Framework”) under a circular dated May 20, 2019. Through the Framework, SEBI will allow FinTech firms to access market related data to enable them to test their innovations effectively.
The Innovation Sandbox will provide a platform for showcasing the working prototype of the solution which will help FinTech firms secure more funding. It will also ensure product regulation and provide an environment where developers could explore industry challenges.
Applicability:
FinTech firms and entities not regulated by SEBI, including individuals (“applicants”) may use the environment for offline testing of their proposed solutions in isolation from the live market provided the following eligibility criteria is met:
- Applicant must be an entity, who intends to innovate on the products, services, and/or solutions for the securities and commodities market in India.
- Applicant should have a genuine need for testing the solution using resources available in the Innovation Sandbox.
- Applicant should be able to postulate that the solution cannot be developed properly without testing in the Innovation Sandbox.
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- Applicant should have the necessary resources to support testing in the sandbox.
- The applicant must have a Post-testing strategy
- The solution proposed must be beneficial to consumers, the capital market and the Indian economy at large.
- The solution must be validated for cyber security parameters.
Datasets:
- Datasets that will be made available to participants will be clearly defined and known to market participants. Indicative datasets which may become part of the Innovation Sandbox are:
- Depositories data: Holding data, KYC data
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- RTA data: Mutual fund transactions data
2. Live data shall not be made available to participants.
3. Datasets will be historical and anonymized data and shall also contain data related to episodic market events. Live data shall not be made available to participants.
4. Access to datasets will be provided in a phased manner.
5. Use of datasets will be governed by comprehensive confidentiality agreement which will include an ‘End User Agreement’ clearly specifying that the datasets made available are not to be sold or sublet or shared in any manner with any other entities.
6. The datasets to be used for testing solutions in the Innovation Sandbox will be shared through application program interface (APIs).
The Innovation Sandbox will ensure that all testing is done in compliance with existing laws, regulations etc. and will be a flexible one to incorporate future changes.
Administration and Implementation:
A governance body shall be formed comprising of representatives from the Stock Exchanges, Depositories and Qualified Registrar and Share Transfer Agents. This body shall supervise the operations of the Innovation Sandbox in the interests of its contributors, users and securities market in general. The governance body shall be responsible for ensuring that the sandbox fulfils its stated objectives. Specific Rules will also be framed to regulate the rights and responsibilities of the participant with respect to an Innovation Sandbox and to other participants.
A steering committee will be constituted within 15 days of issuance of the circular, i.e. by June 3, 2019 to develop operational guidelines for the sandbox. The steering committee will receive, evaluate and process the applications from applicants participating in the Innovation Sandbox. The initial process will be manual but the entire the participation lifecycle will be digitized within the next 24 months.
