Before the 2000s, the Indian financial sector underwent some digitalization with the introduction of online banking services. However, the landscape was still dominated by traditional banking structures.
The Reserve Bank of India (RBI) introduced NEFT in 2005, facilitating electronic fund transfers between banks in the country. This was a significant step toward modernizing the payment infrastructure.
The RBI introduced regulatory sandboxes to enable fintech startups to test their products and services in a controlled environment. This initiative aimed to foster innovation while maintaining regulatory oversight. The RBI introduced data localization norms, requiring financial data to be stored within India. This move aimed to enhance data security and privacy in the financial sector.
The Indian fintech sector continues to expand, encompassing a wide range of services, including digital payments, peer-to-peer lending, insurtech, robo-advisory, and blockchain-based solutions. Startups and established players alike contribute to the vibrant fintech landscape.
Define the word “FinTech Entity”, ‘Foreign FinTech’s’, ‘Innovation Sandbox’ and ‘Regulatory Sandbox’ :
1.‘FinTech Entity’ means an entity authorized by the Authority under the appropriate framework and shall include both Domestic and Foreign FinTech’s
2.‘Foreign FinTech’s’ means a non-resident entity from outside India engaged in the FinTech activity
3.‘Innovation Sandbox’ means a testing environment where FinTech Entities can test their ideas and solutions in isolation from the live market that may add value to the financial products or financial services offered in IFSC based on market related data made available to them by Financial Institutions operating in IFSC
4.‘Regulatory Sandbox’ means a live environment with a limited set of real customers for a limited timeframe wherein entities operating in the capital market, banking, insurance and other financial services space in IFSC shall be granted certain exemptions / relaxations from applicability of certain regulatory provisions for experimenting FinTech ideas and solutions;
A. Regulatory requirement Of fintech:
1.Eligibility:
An Applicant who satisfies any of the following conditions shall be eligible to make an application to IFSCA for Authorization under this Chapter:
(i) Where the Applicant is from India:
a) An entity registered with Department for Promotion of Industry and Internal Trade (DPIIT) as a start-up entity relating to FinTech; or
b) An entity incorporated as a company under the Companies Act 2013, or as a Limited liability Partnership (LLP) under the Limited liability Partnership Act, 2008 or a ‘Branch’ of an Indian company or LLP in IFSC; or
c) An entity working directly or indirectly in the ecosystem regulated by domestic financial sector regulator.
(ii) Where the Applicant is from Outside India – An entity from FATF compliant countries/jurisdictions;
B. Regulatory requirement Of Regulatory Sandbox:
1.Permissible Activities:
An Applicant shall be permitted to undertake one or more of the following activities under this Chapter subject to fulfilment of the following requirements:
(a) Test FinTech ideas or solutions in IFSCA FinTech Regulatory Sandbox; or
(b) Develop and test FinTech ideas or solutions in IFSCA FinTech Innovation Sandbox; or
(c) Test FinTech ideas or solutions in Inter- Operable Regulatory Sandbox (IoRS) ; or
(d) Provide FinTech ideas or solutions in the Overseas Regulatory Referral mechanism/FinTech Bridge offered by IFSCA.
2.Eligibility:
An Applicant who satisfies any of the following conditions shall be eligible to make an application to IFSCA under this Part:
(i) Where the Applicant is from India:
a) An entity registered with Department for Promotion of Industry and Internal Trade (DPIIT) as a start-up entity relating to FinTech; or
b) An entity incorporated as a company under the Companies Act 2013, or as a Limited liability Partnership (LLP) under the Limited liability Partnership Act, 2008 or a ‘Branch’ of an Indian company or LLP in IFSC; or
(c) An entity working directly or indirectly in the ecosystem regulated by domestic financial sector regulator.
(ii) Where the Applicant is from Outside India – An incorporated entity or a branch of an incorporated entity from FATF compliant countries/jurisdictions;
The Applicant proposes to use innovative technology in its core product or service, business model, distribution model or methodology to provide financial services that are or likely to be regulated by the Authority.
C. Regulatory requirement Of Innovation Sandbox:
FinTech firms may access the “Innovation Sandbox”, which 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 regulated entities in IFSC.
The Regulated entities operating in IFSC shall put in place the necessary systems and infrastructure for operationalizing the Innovation Sandbox.
The clauses governing the eligibility criteria for the Applicant of this framework shall be applicable mutatis mutandis to the IFSCA FinTech Innovation Sandbox (FIS).
The Authority may after considering the application and on being satisfied that the applicant has complied with the conditions laid down under this part, grant the applicant ‘Limited Use Authorization ‘as a ‘FinTech Entity’ to develop and test the proposed solution in the IFSCA FinTech Innovation Sandbox.
At the end of the testing period, the Limited Use Authorization as FinTech Entity granted to the applicant shall expire.
Illustrative list of Areas/Activities under FinTech and TechFin:
A. An illustrative list of permissible FinTech areas/activities linked to financial services regulated by IFSCA is given below:
I. Banking Sector
II. Capital Markets and Funds Management
III. Insurance sector
OTHERS:
(a) Agri Tech
(b) Accelerators
(c) Climate/Green/Sustainable Tech
(d) Defence Tech
(e) Regulatory Tech
(f) Space Tech
(g) Supervisory Tech
(h) Technology solution supporting Digital banking (example Core Banking etc.)
(i) Technology solution aiding Trade Finance
(j) Solutions/services for BFSI domain leveraging:
