RBI, India's AML/CFT Guidelines for NPPS
RBI MD dated July 01,
2008:
2.10 Introduction of
New Technologies – Credit cards/debit cards/ smart cards/gift card
Banks should pay special attention to any money laundering threats that may
arise from new or developing technologies including internet banking that might
favour anonymity, and take measures, if needed, to prevent their use in money
laundering schemes. Many banks are engaged in the business of issuing a variety
of Electronic Cards that are used by customers for buying goods and services,
drawing cash from ATMs, and can be used for electronic transfer of
funds. Further, marketing of these cards is generally done through
the services of agents. Banks should ensure that appropriate KYC procedures are
duly applied before issuing the cards to the customers. It is also desirable
that agents are also subjected to KYC measures.
MD
dated Feb 25, 2016 updated on 04 Jan 2024
62. Introduction of New Technologies
REs shall identify and
assess the ML/TF risks that may arise in relation to the development of new
products and new business practices, including new delivery mechanisms, and the
use of new or developing technologies for both new and pre-existing products.
Further, REs shall ensure:
(a) To undertake the ML/TF
risk assessments prior to the launch or use of such products, practices,
services, technologies; and
(b) Adoption of a risk-based
approach to manage and mitigate the risks through appropriate EDD measures and
transaction monitoring, etc.
RBI Enabling Framework for Regulatory Sandbox dated Feb 28, 2024
The RBI introduced the regulatory sandbox in 2019. Reserve Bank of India today placed on its website the updated ‘Enabling Framework for Regulatory Sandbox’. The framework has been revised based on the experience gained over the last four and half years in running four cohorts and feedback received from FinTechs, banking partners and other stakeholders. Among others, the timelines of the various stages of the Regulatory Sandbox process have been revised from seven months to nine months. The updated framework also requires sandbox entities to ensure compliance with provisions of the Digital Personal Data Protection Act, 2023.
Background:
The ‘Enabling Framework for
Regulatory Sandbox’ was placed on RBI website on August 13, 2019,
after wide ranging consultations with stakeholders. As stated therein, the
objective of the Regulatory Sandbox (RS) is to foster responsible innovation in
financial services, promote efficiency and bring benefit to consumers.
The Regulatory Sandbox: Principles and Objectives
2.1 The Regulatory Sandbox
RS usually refers to live testing of new products or services in a
controlled/test regulatory environment for which regulators may (or may not)
permit certain regulatory relaxations for the limited purpose of the testing.
The RS allows the regulator, the innovators, the financial service providers
(as potential deployers of the technology) and the customers (as final users)
to conduct field tests to collect evidence on the benefits and risks of new
financial innovations, while carefully monitoring and containing their risks.
It can provide a structured avenue for the regulator to engage with the
ecosystem and to develop innovation-enabling or innovation-responsive
regulations that facilitate delivery of relevant, low-cost financial products.
The RS is an important tool which enables more dynamic, evidence-based
regulatory environments which learn from, and evolve with, emerging
technologies.
2.2 Objectives
The objective of the RS is to foster responsible innovation in
financial services, promote efficiency and bring benefit to consumers.
The RS is, at its core, a formal regulatory programme for market
participants to test new products, services or business models with customers
in a live environment, subject to certain safeguards and oversight. The
proposed financial service to be launched under the RS should include new or
emerging technology, or use of existing technology in an innovative way and
should address a problem and bring benefits to consumers.
3. Regulatory Sandbox: Benefits
The setting up of an RS can bring several benefits, some of which
are significant and are delineated below:
3.1 First and foremost, the RS fosters ‘learning by doing’ on all
sides. Regulators obtain first-hand empirical evidence on the benefits and
risks of emerging technologies and their implications, enabling them to take a
considered view on the regulatory changes or new regulations that may be needed
to support useful innovation, while containing the attendant risks. Incumbent
financial service providers, including banks, also improve their understanding
of how new financial technologies might work, which helps them to appropriately
integrate such new technologies with their business plans. Innovators and
FinTech companies can improve their understanding of regulations that govern
their offerings and shape their products accordingly. Finally, feedback from
customers, as end users, educates both the regulator and the innovator as to
what costs and benefits might accrue to customers from these innovations.
3.2 Second, users of an RS can test the product’s viability
without the need for a larger and more expensive roll-out, if the product
appears to have the potential to be successful. If any concerns arise, during
the sandbox period, appropriate modifications can be made before the product is
launched in the broader market.
3.3 Third, FinTechs provide solutions that can further financial
inclusion in a significant way. The RS can go a long way in not only improving
the pace of innovation and technology absorption but also in financial
inclusion and in improving financial reach. Areas that can potentially get a
thrust from the RS include microfinance, innovative small savings, remittances,
mobile banking and other digital payments.
3.4 Fourth, by providing a structured and institutionalized
environment for evidence- based regulatory decision-making, the dependence of
the regulator on industry/stakeholder consultations only is correspondingly
reduced.
3.5 Fifth, the RS could lead to better outcomes for consumers
through an increased range of products and services, reduced costs and improved
access to financial services.
The Reserve Bank of India's (RBI)
regulatory sandbox is a controlled environment that allows financial
services companies to test new products and services. The sandbox's
objectives include: Promoting efficiency, Fostering responsible
innovation, Developing regulations that facilitate low-cost financial products,
Benefiting consumers, and Collecting evidence on the risks and benefits of new
financial innovations.
The sandbox's processes include: preliminary
screening, application assessment and shortlisting, test design and
integration, testing, and evaluation.
The sandbox is open to a range of
applicants, including: Banks, Fintechs, and Companies that partner with or
support financial services businesses.
To be eligible, an applicant must:
·
Be a bank licensed to operate in
India
·
Be a company registered in India
·
Be a financial institution
constituted under a statute in India
·
Have a minimum net worth of Rs 25
lakhs as per the latest audited balance
·
Enabling Framework for Regulatory
Sandbox - RBI
The Reserve Bank of India's (RBI)
regulatory sandbox is a controlled environment that allows financial
services companies to test new products and services. The sandbox's
objectives include: Promoting efficiency, Fostering responsible
innovation, Developing regulations that facilitate low-cost financial products,
Benefiting consumers, and Collecting evidence on the risks and benefits of new
financial innovations.
The different processes and stages
involved in a regulatory sandbox include preliminary screening, the assessment
of applications and shortlisting, formulation of test design and integration
phase, and a testing and evaluation phase.
It enables the regulator, financial
service providers, and customers to conduct field tests, and collect evidence
on benefits and challenges of new financial innovations while monitoring and
containing their risks.
The sandbox is open to a range of
applicants, including: Banks, Fintechs, and Companies that partner with or
support financial services businesses.
To be eligible, an applicant must:
·
Be a bank licensed to operate in
India
·
Be a company registered in India
·
Be a financial institution
constituted under a statute in India
·
Have a minimum net worth of Rs 25
lakhs as per the latest audited balance
·
Enabling Framework for Regulatory
Sandbox – RBI
RBI Sandbox is based on thematic cohorts; the first cohort was on Retail Payments, the second cohort was on Cross Border Payments, and the third cohort, was on MSME Lending
Three entities had completed the test phase of the fourth cohort
of the Regulatory Sandbox with 'Prevention and Mitigation of Financial Frauds'
as its theme as on June 18, 2024.
Out of the six applications selected
by the banking regulator for testing in January 2023, the products from these
three entities exited the regulatory sandbox cohort.
RBI mentioned entities namely Bahwan Cybertek, napID Cybersec, and Trusting Social which completed the test phase of the cohort.
Products which participated in the
regulatory sandbox include transaction monitoring for banks, authorisation of
transactions, and assessment of default risk of a loan applicant, respectively.
The products found acceptable under this cohort may be considered for adoption by regulated entities subject to compliance with applicable regulatory requirements. Further, as per the provisions of the Enabling Framework for Regulatory Sandbox, the fourth cohort on ‘Prevention and Mitigation of Financial Frauds’ is now open for ‘on-tap’ applications.
The target applicants for entry to
the regulatory sandbox include fintechs, banks, and companies partnering with
or providing support to financial services businesses, among others.
Five entities were selected for the test phase of the regulatory sandbox’s theme-neutral fifth cohort that it had announced in October 2023 by July 26, 2024 . The banking regulator received 22 applications for this cohort of the regulatory sandbox
The selected entities include
companies such as Connectingdot Consultancy, Epifi Technologies, Finagg
Technologies, Indian Banks’ Digital Infrastructure Company (IBDIC), and Signzy
Technologies.
These firms offer services such as categorisation of risks in loan portfolios, digital opening of accounts for Non-Resident Indians (NRIs) through video Know Your Customer (KYC), MSME financing, unassisted video KYC, among others.
Happy reading,
Those who read this, also read:
1. CDD: Non-Face-to-Face Customers(NFTF)
2. Cross-Border Payment Guidelines- RBI, India
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