RBI proposes to allow fintech start-ups to test regulatory sandbox

Crypto Startups Barred from Indian Central Bank Fintech Sandbox

Crypto Startups Barred from Indian Central Bank Fintech Sandbox

The bank issued another statement in February 2017, advising the public that it had not given any license or authorization to any entity or company dealing in cryptocurrency.

The Reserve Bank of India (RBI) published its draft framework for a regulatory sandbox on Thursday, a move that comes almost three years after it first formed a working group to look into fintech solutions.

The working group included representatives from the RBI, the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority, the Pension Fund Regulatory and Development Authority, the National Payments Corporation of India, the Institute for Development and Research in Banking Technology, select banks and rating agencies.

The draft confirms that this financial service will set the stage to launch new advancements in this sector and also sustain the existing technology.

There is a huge advantage to operating a sandbox.

RBI's focus on the use of blockchain technology in the payments sector should hardly come as a surprise. In addition, they are also expected to fall within the parameters of the sandbox, as per the draft.

A lot of people in crypto world were expecting this document to bring some relief to the struggling crypto business in the country but to everyone's surprise, the central bank of the country chose to avoid it completely by keeping cryptocurrencies, trading of cryptocurrencies and ICO's out of the purview of the Regulatory Sandbox.

However, that being said, a sliver of hope remains in the regulation, as it appears to leave a backdoor open for crypto entrepreneurs in case "the applicants can show that either a different technology is being gainfully applied or the same technology is being applied in a more efficient and effective manner". This is, obviously, a huge disappointment in the crypto space. The document explicitly excludes cryptocurrencies, crypto-assets services, crypto trading, investing or settling, and initial coin offerings (ICOs) from the regulatory sandbox.

Looking down at crypto-related projects is nothing new to the RBI. Also, post-sandbox testing, a successful experimenter may still require regulatory approvals before the product, services or technology can be permitted for wider application.

The document states that the RBI is actively looking for projects that focus on the application of fintech in the fields of retail payments, global money remittances, digital identity, mobile payments, and financial inclusion. In fact, it has already banned banks in the country when it comes to performing businesses related to crypto startups.