Lobbyists highlight the need for reviewing RBIs ban on the cryptocurrency in the Regulatory Sandbox

The lobbyist are pleading Reserve Bank of India (RBI) to review its decision to ban cryptocurrency development & testing in the regulatory sandbox. The Central Bank had released the draft regulations for start-ups to apply for creating a regulatory sandbox for fintech innovation. According to the ‘Draft Enabling Framework for Regulatory Sandbox’, published on April 18, 2019, RBI has barred cryptocurrency, cryptocurrency exchange, Initial Coin Offerings (ICO) from the regulatory sandbox.

RBI’s framework

According to the draft guidelines, any startup which is worth Rs. 50 lakh and above will be eligible for applying for the use of the regulatory sandbox. RBI has announced that it will take 10 -12 startups in the pilot testing phase. The startups will be permitted to test the working of blockchain technology for digital payments, KYC Testing, remittances, lending, and cybersecurity.

The regulator has called in the opinion of the public for the improvement of the draft.

Stakeholders reactions

The development & innovation of cryptocurrency and blockchain assets and distributed ledgers are the future of the finance sector. Their exclusion from the regulatory sandbox will prove to be a major setback for the finance sector. The applications of blockchain other than the altcoins and smart contracts are included in the framework of the regulatory sandbox.
Naveen Surya of Payments Council of India stated that,

“Boundaries cannot be set right away. The discussion has been on how open framework can be created instead of a subset of existing laws because then we wouldn’t be achieving innovation objective.”

NASSCOM an IT industry trade association said,

“Since cryptocurrency & tokens are an important component of blockchain technology, the draft regulations appear to exclude testing of smart contracts and other approved blockchain technology under the sandbox.”

The association further added that,

“The decision to keep cryptocurrencies and initial coin offering out of the purview of the regulatory sandbox is not clear.”

Other favourable reactions to include the cryptocurrencies in the Economic Times article are from Ramani Ramachandran, CEO of ZPX – a startup in Singapore. The company is working on building blockchain assets on the regulatory sandbox of Central Bank of Bahrain.
Nitin Sharma of Incrypt Blockchain has submitted a research report to RBI that highlights that restricting the blockchain assets and qualified cryptocurrency companies on the regulatory sandbox will allow India to experiment without any significant risk.
The other market participants have concluded that the draft regulations have made it clear that the government will keep the fiat currency on the road to the future and use the blockchain technology in resolving issues like security and governance.

Regulatory Sandbox

Sandbox creates a testing environment for the innovation of new software and digital products. The regulatory sandbox is a testing universe for the financial products, assets and new finance technology under the surveillance of the regulatory authority. These sandboxes unable the countries to build and grow their economies in a framework. The Sandbox creates a favourable and fitting atmosphere for the development of the new fintech products.
The United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development mentions the utilization of blockchain technology in improving the growth rates of the emerging market economies. The technology can be used to create blockchain-based remittance system, credit scoring, e-KYC, biometric ID system, etc.

The first regulatory sandbox was created in the UK in 2015. Currently, there are 20 regulators worldwide, who have implemented the concept or has already launched the sandbox.

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