In our Blog Embracing Change: The Regulatory Sandbox, we have covered various regulatory sandboxes in India, specifically focusing on the Enabling Framework for Regulatory Sandbox’ notified by the Reserve Bank of India on August 13, 2019. In this article, we have highlighted and analysed the salient features of the Framework on Regulatory Sandbox released by the Securities Exchange Board of India (“SEBI”) on June 05, 2020.


With an aim to facilitate use of latest fintech innovations in capital markets, the SEBI has released the circular dated June 05, 2020 which introduces the Framework on Regulatory Sandbox (“RS Framework”), thereby allowing live testing of new products, services and business models, such as allowing the use of distributed ledger technology for enabling the trade of securities in the open market and automating the life cycle management of the securities post such trading, by market players on select customers . Further,  SEBI also passed the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2020 (“SEBI Regulatory Sandbox Regulations”) primarily for providing adequate powers to the SEBI to provide regulatory exemptions proposed in the RS Framework.

This development comes in the wake of the Discussion Paper on Framework for Regulatory Sandbox (“Discussion Paper”) dated May 28, 2019 which was released by SEBI to discuss the viability of establishing a Regulatory Sandbox (“RS”) in the context of Indian securities market. Prior to this,  SEBI had also released a framework for Innovation Sandbox dated May 20, 2019 (“IS Framework”), where any entity, that is not regulated by SEBI, was allowed use the sandbox for offline testing of its proposed solution in the capital markets, subject to fulfilment of a pre-determined eligibility criteria (“Innovation Sandbox”).

SEBI, by introducing the RS Framework has brought in a base for testing innovative FinTech products  (to further develop and maintain an efficient, fair and transparent securities market ecosystem) matching the progress made by other Indian regulators such as the Insurance Regulatory and Development Authority of India (“IRDA”), which introduced the IRDA (Regulatory Sandbox) Regulations, 2019 dated July 26, 2019 and the Reserve Bank of India (“RBI”), which released the Enabling Framework for Regulatory Sandbox dated August 13, 2019 (“RBI Enabling Framework”).

Salient Features of the RS Framework:

  1. Applicability and Eligibility

The RS is currently open only to the entities registered as market participants and intermediaries under Section 12 of the SEBI Act, 1992 (“Intermediaries”). As per the RS Framework: “Such Intermediaries may either on its own or engage the services of a FinTech firm. In either scenario, the Intermediaries shall be treated as the principal applicant, and shall be solely responsible for testing of the solution.” The RS Framework requires SEBI to assess the genuineness of the innovation, the benefits to the users, the risks involved and the ability to deploy the product/service post-testing, for admission of an applicant to the RS.

      2. RS Process and Evaluation Criteria

SEBI will inform the applicant of its acceptance to the RS within 30 days of its application (application stage). If the applicant is able to meet the regulatory requirements and conditions as determined by SEBI, it will be granted permission to develop and test the proposed product/service in the RS within a period of 12 months from the date of acceptance (testing stage) extendable upon request of the applicant. The RS Framework also prescribes certain evaluation parameters for SEBI, inter alia, the profile of the applicant, the usage of innovative solution and its identified benefits to the investors and/or the securities/commodities markets, risk mitigation for high risk testing conditions and parameters, appropriate disclosure requirements and protection to their users, grievance redressal mechanism and user rights.

During the testing stage, SEBI and the applicant should endeavour to interact and work closely and resolve any problem on an on-going basis to make the testing stage as productive as possible. This will also enable SEBI and the applicant to supervise and guide each other more closely at each and every critical step during the testing process.

Some observations regarding the RS Framework and its applicability:

  1. Non-Thematic Approach: As mentioned above, all the Intermediaries are eligible for applying under the RS Framework. Further, unlike the RBI Enabling Framework, the RS Framework does not adopt a cohort-based approach, demarcating the focus on certain defined areas of innovation at a time. Although, this non-thematic approach adopted by SEBI may allow a wider range of entities and products to avail the benefit of being tested in a regulatory sandbox, SEBI may consider being selective in order to provide for an in-depth analysis of the product/services to be tested in the RS on the basis of such product/services which have the most utilitarian usage and benefit.
  2. Consumer Protection: The RS Framework mandates the applicant to obtain prior confirmation from the users that they are aware of the risk involved in using the solution. The onus on risk mitigation strategy is on the Intermediary-applicants and the applicants should consider this carefully, and amongst other things, may consider obtaining appropriate liability/indemnity insurance to safeguard the interest of the users.
  3. Protection of Intellectual Property (“IP”): The applicant should consider entering into appropriate confidentiality agreement for the protection of theirs / connected FinTech firm’s IP.

 International Regulatory Sandboxes

Whilst Indian regulators have recently recognised the benefits of adoption of RS, other jurisdictions have already developed a robust framework. For example, the Financial Conduct Authority (“FCA”) of the UK launched its regulatory sandbox in 2016 and has made great strides by testing 118 innovations from 5 cohorts.[1] Similarly, the Canadian Securities Administrators (“CSA”) launched a regulatory sandbox in 2017 and has authorized regulatory reliefs to 9 firms, such as Angel List LLC which is an online platform facilitating venture capital and angel investing in start-ups.[2] Further, around 17 securities market regulators around the globe are participating in the Global Financial Innovation Network (“GFIN”) introduced to provide a “global sandbox” for cross-border testing of fintech solutions. Considering that smaller economies such as Bahrain and Lithuania are also active members of the GFIN, India has huge opportunities to explore, talent, experience and tech skills to contribute, and learnings to strive for in innovation of fintech solutions by becoming a member of GFIN. The regulatory framework brought about by the RBI, the IRDA and the SEBI is the first definite step in that direction. More so, given the enhanced and unprecedented dependence on technology across regions and humanity in times of COVID-19.


The RS Framework is a step in the right direction. It will help our governmental agencies to interact more closely with the FinTech innovators and empathize with each other’s tasks and proposed solutions. No doubt these regulations on Regulatory Sandbox will further develop with experiences. One of the key elements for such development will be frequent interactions and learning shared between the different Governmental agencies, and if possible, the ability to cross-pollinate the standout innovations and ideas across jurisdictions and sphere of regulations.

[1] Regulatory Sandbox- Cohort 1 dated June 15, 2017, available at:

[2] CSA Regulatory Sandbox dated May 21, 2019, available at:


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