The Reserve Bank of India (RBI) has announced the terms of its regulatory sandbox in report on April 18. Per the terms of the sandbox, various applications of blockchain technology can be tested, while cryptocurrency-related projects are clearly excluded.
Sandboxes are used by regulators around the world, including the Financial Conduct Authority in the U.K., so fintech companies can put their innovations to the test with a small number of consumers over a set time period.
Almost three years after the RBI began reviewing its framework to respond to the dynamics of the “rapidly evolving” fintech market, India’s central bank has concluded “innovative technology” built on blockchain can be sampled by the public — giving the institution a chance to assess whether new regulations are needed to protect consumers.
The RBI says fintech companies and consumers also benefit from this arrangement. While blockchain firms can “test a product’s viability without the need for a larger and more expensive roll-out,” the public could benefit from “reduced costs and improved access to financial services.”
However, the report does admit that “innovators may lose some flexibility and time” by embarking on the sandbox process, and adds that completing these tests do not guarantee that further regulatory approval will not be needed.
Detailing the “innovative technologies” given the green light to apply for sandbox testing, the RBI lists blockchain platforms along with mobile-based payment and digital identity software, data analytics, and artificial intelligence or machine learning applications. Eligible sectors for “innovative products and services” include retail payments, money transfer services, digital Know Your Customer checks, smart contracts and cybersecurity products.
As well as cryptocurrencies, platforms which enable crypto assets to be traded and invested — as well as initial coin offerings — have been excluded. Products and services already banned by regulators or India’s government are also ineligible to apply.
Cointelegraph reported last April that the RBI said it would no longer provide services to people or businesses who deal with cryptocurrencies. Five months later, one of India’s biggest crypto exchanges, Zebpay, announced that it had ceased all trading due to “extremely difficult” conditions.
The Reserve Bank of India had been pursuing the idea of releasing its own digital currency, but these plans were postponed at the start of the year. Amid growing uncertainty about crypto regulation in the world’s second-most populous country, February saw the Supreme Court give Indian authorities a four-week deadline to issue regulations or face the threat of the court releasing a judgment themselves.