Nasscom asks Sebi to create virtual testing provision for startups in sandbox

Technology industry association Nasscom has proposed that special provisions for virtual testing of fintech products be created in the capital market regulator’s proposed regulatory sandbox, as some startups may not have the scope to test their products offline.
The Securities and Exchange Board of India had on May 28 introduced a discussion paper on a regulatory sandbox and invited suggestions for the framework. The objective of the move is to use fintech as an instrument to improve the fairness and transparency of the securities market ecosystem, according to Sebi.
In the eligibility criteria to enter the sandbox, Sebi has mandated “limited offline testing” by the applicants, a condition that Nasscom wants it to relax.
There are situations when a test environment does not exist or is a barrier in terms of entry into the sandbox, the lobby group said in its submission on the proposed framework. “Most of the fintech companies, especially the startups, do not have scope for offline testing of solutions before entering or applying for the sandbox,” the industry body said.
It proposed that the requirement of limited offline testing be made optional for applicants. “There should be a provision for participant firms to test their solutions virtually without entering the real market, if needed,” it suggested.
Nasscom also wants the timeframe of the testing period to be extended to 18 months from 12 months. The currently proposed duration is for a testing period of up to nine months with a maximum extension of three months. Nasscom wants this to be changed to one year, extendable by another six months “based on the merits of such requests”.
It said: “While we understand that this time period is greater than the six months’ duration considered as ‘appropriate duration for testing’ by the UK’s Financial Conduct Authority (FCA), it seems to be less in the Indian context given the geographical spread of our country, languages and different levels of access to technology and capital market instruments.”
Meanwhile, the Payments Council of India has suggested that similar sandboxes proposed by the insurance regulator and the Reserve Bank of India be made interoperable with that proposed by Sebi.
Naveen Surya, the chairman-emeritus of PCI who had submitted the suggestions, said: “It’s important that regulators create a framework where they can talk to each other through sandboxes or the government create a protocol for them to talk to each other.”
With startups expanding products and services, managing individual approvals from each regulator has become an arduous task, he said. “In many cases, the fintech companies have to talk to at least two regulators and as the services get expanded, all three regulators. If you’re trying to do an innovative product and you have to do three separate sandboxes with various implications, it may be a challenge with different timelines, requirements, etc.”