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Regulatory Sandbox

2020 OCT 21

Preliminary   > Economic Development   >   Miscellaneous   >   Financial market

Why in news?

  • International Financial Services Centres Authority (IFSCA) has introduced a framework for “Regulatory Sandbox”.

What is it?

  • A regulatory sandbox usually refers to live testing of new products or services in a controlled/test regulatory environment for which regulators may permit certain regulatory relaxations for the limited purpose of the testing.
  • For example, if a fintech company’s business model requires interface with a core banking system for example, a real-time and scaleable model of it will be made available to the testing teams.
  • This will be done for them to simulate whether the data flow and transaction flow follows the regulatory guidelines.

IFSCA Regulatory Sandbox

  • Under this Sandbox framework, entities operating in the capital market, banking, insurance and financial services space shall be granted certain facilities and flexibilities to experiment with innovative FinTech solutions in a live environment with a limited set of real customers for a limited time frame.
  • These features shall be fortified with necessary safeguards for investor protection and risk mitigation.
  • The Regulatory Sandbox shall operate within the IFSC located at GIFT City.
  • All entities (regulated as well as unregulated) operating in the capital market, banking, insurance and pension sectors as well as individuals and startups from India and FATF compliant jurisdictions, shall be eligible for participation in the Regulatory Sandbox.

Innovation Sand Box

  • As an additional steps towards creating an innovation-centric ecosystem in the IFSC, IFSCA has proposed the creation of an “Innovation Sandbox”.
  • It will be a testing environment where FinTech firms can test their solutions in isolation from the live market, based on market related data made available by the Market Infrastructure Institutions (MIIs) operating in the IFSC.
  • The Innovation Sandbox will be managed and facilitated by the MIIs operating within the IFSC.

About IFSCA:

  • IFSCA is a statutory authority established by Government of India and it acts as a unified authority to regulate all financial services in International Financial Services Centres (IFSCs) in India. 
  • It is headquartered at GIFT City, Gandhinagar in Gujarat.
  • Prior to the establishment of IFSCA, the domestic financial regulators, namely, RBI, SEBI, PFRDA and IRDAI regulated the business in IFSC.

What is GIFT?

  • Gujarat International Finance Tech-city (GIFT) SEZ is India’s first International Financial Services Centre (IFSC) under Special Economic Zone Act, 2005 (“SEZ Act 2005”).
  • An IFSC provides world class financial services to non-residents and residents, to the extent permissible under the current regulations, in a currency other than the domestic currency (ie Indian rupee) of the location where the IFSC is located.
  • GIFT is planned as a greenfield business district, to be located between Gandhinagar and Ahmedabad, to cater to financial services and IT firms looking to set up India operations.
  • The city will have demarcated zones for international exchanges, banking and insurance firms, tech companies and others.
  • GIFT IFSC provides very competitive cost of operations for companies with very competitive tax regime, single window clearance, relaxed company law provisions and an international arbitration Centre with overall facilitation of doing business.

PRELIMS QUESTION

India’s first international financial service center (IFSC) is located in the state of:
(a)Gujarat
(b)Tamilnadu
(c)Maharashtra
(d)Haryana

Answer to prelims question