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Revised Framework for Regulatory Sandbox - SEBI - SEBI/HO/ITD/ITD/CIR/P/2021/575

Extract

..... , Mridusmita Goswami General Manager Information Technology Department Phone: +91-022-26449504 Email: mridusmitag@sebi.gov.in Annexure A- Standard Operating Procedure - Regulatory Sandbox APPLICABILITY 1. All entities registered with SEBI under section 12 of the SEBI Act 1992, shall be eligible for testing in the regulatory sandbox. The entity may apply either on its own or in partnership with any other entity. In either scenarios, the registered market participant shall be treated as the principal applicant, and shall be solely responsible for testing of the solution. STAGES OF SANDBOX TESTING 2. The details of the stages of sandbox testing are as below: 2.1. Stage-I: SEBI will approve the limited set of users as proposed by the applicant for testing in Stage-I. During the stage-I testing, applicant shall use limited and identified set of users with maximum cap on users based on the requirement of the applicant duly approved by SEBI on case to case basis. These users will be required to provide positive consent including their understanding of the risks of using the solution. 2.2. Stage-II: During the stage-II testing, applicant shall test with larger set of identified users with .....

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Revised Framework for Regulatory Sandbox - SEBI

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..... e applicant should demonstrate that they have achieved adequate progress and are on track with their testing plan. 5.2. Compliance to the objective of the Regulatory Sandbox: The applicant should provide justification that they are complying with the objective of the Regulatory Sandbox. 5.3. Reviews of the Risks observed during Stage-I testing: The applicant should submit the details of the risks observed during stage-I testing along with the steps taken to mitigate those risks. 5.4. Safeguards to mitigate potential risks: The applicant should provide the list of appropriate safeguards to manage the risks and contain the consequences of failure. 5.5. Users feedback: The applicant should present summary of the feedback received from the users participated during stage-I of the Regulatory Sandbox testing highlighting the adverse feedbacks and steps taken to address the same. 5.6. Deployment post-testing: The applicant should present the intention and ability to deploy the solution on a broader scale. To this effect the applicant should share a proposed sandbox exit strategy. APPLICATION AND APPROVAL PROCESS 6. The applicant shall ensure that the specified eligibility criteria are sat .....

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Revised Framework for Regulatory Sandbox - SEBI

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..... its users that the solution shall operate in a sandbox and the potential key risks associated with the solution. The applicant is also required to obtain the users’ positive consent that they have read and understood the risks before any transactions separately for both Stage-I and Stage-II. 13. During the Stage-I testing stage, the applicant shall take prior approval from SEBI to effect any material changes to the solution. 14. The applicant shall assign a contact person to coordinate with a designated officer of SEBI. 15. An applicant is eligible for Stage-II after completing minimum three (3) months in the Regulatory Sandbox testing. 16. If applicant wishes to apply for Stage-II, the applicant should submit the application as per Annexure-2 to SEBI. 17. The application shall be evaluated on the eligibility criteria mentioned for Stage-II. Applicants may be required to make a presentation to the Regulatory Sandbox sub-committee either physical or through online mode. 18. If approved, applicant enters stage-II of Sandbox testing: Applicant shall be able to test on users with maximum cap on users based on the requirement of the applicant duly approved by SEBI. These users wi .....

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Revised Framework for Regulatory Sandbox - SEBI

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..... I testing 22.2.2. Review of the risks observed during stage -I testing 22.2.3. Review of the steps taken to mitigate the risks 22.2.4. Appropriate safeguards to manage the risks and contain the consequences of failure 22.2.5. User feedback during stage-I testing 22.2.6. Intent and feasibility to deploy the proposed Innovative solution post testing 22.2.7. The deployment and monitoring strategy post testing (in the event the tests are deemed successful) or the withdrawal strategy including for participating users (in the event the tests are not successful) REGULATORY EXEMPTIONS 23. To encourage innovation with minimal regulatory burden, SEBI shall consider exemptions/ relaxations, if any, which could be either in the form of a comprehensive exemption from certain regulatory requirements or selective exemptions on a case-by-case basis, depending on the Innovative solution to be tested. 24. Within the overarching principles of market integrity and investor protection, no exemptions would be granted from the extant investor protection framework, Know-Your-Customer (KYC) and Anti-Money Laundering (AML) rules. 25. Entities desirous of participating in sandbox shall make an application, i .....

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Revised Framework for Regulatory Sandbox - SEBI

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..... laints, if any iii) Key learnings from the test 32. The monthly and final reports must be confirmed by the Chief Executive Officer (CEO) of the applicant or officer duly authorized by the CEO or the compliance officer. 33. The sandbox applicant must ensure that proper records of the conducted tests are maintained for review by SEBI. Further, the applicant shall also maintain such records for a period of three (3) years from the date of completion of testing/ exit from the sandbox. OBLIGATIONS OF THE APPLICANT TOWARDS THE USER 34. The applicant shall ensure that before signing up, the user has read the full documentation provided by the applicant and confirm that he/she is aware of the risks of using the solution and if asked by SEBI, submit the user consent form in the format prescribed in Annexure-4. 35. Right of the users participating in the sandbox: 35.1. The applicant shall ensure that users participating in the sandbox have the same protection rights as the ones participating in the live market except for the specific provisions mentioned in the user consent form and relaxations granted under regulatory sandbox. 35.2. The applicant shall take liability / indemnity insurance o .....

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Revised Framework for Regulatory Sandbox - SEBI

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..... .2.1. Process of notification to the existing users regarding the termination of the sandbox testing and informing them on the necessary steps to be taken. 38.2.2. Settling/ transferring etc. of the current position of the existing users within 15 days of the initiation of the withdrawal strategy, as may be applicable. 38.2.3. Refund of any dues to the existing users within 15 days of the initiation of the withdrawal strategy. 39. At the end of the Stage-II testing period, the permission granted to the applicant as well as the legal and regulatory requirements relaxed by SEBI, shall expire. 40. Upon completion of testing, i) SEBI shall decide whether to permit the innovation to be introduced in the market on a wider scale. Where allowed, applicants intending to carry out regulated businesses shall be assessed based on applicable licensing, approval and registration criteria under various SEBI regulations, as the case may be. 41. The applicant may withdraw from the sandbox on its own by giving a prior notice to SEBI, in writing, of its intention to withdraw from the sandbox. 42. The applicant shall ensure that any existing obligation to the users of the Innovative solution(s) in the .....

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Revised Framework for Regulatory Sandbox - SEBI

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..... y suspend trials on new users i.e. not permitting new users to sign up for using/ testing the solution and give a notice to the applicant of the intention of SEBI to revoke the approval detailing the grounds for such an intention; ii. provide an opportunity to the applicant to respond to SEBI on the grounds for revocation; and iii. dispose of the notice through a speaking order. 47. Notwithstanding anything contained in paragraph 46 above, where SEBI is satisfied that in the interest of the applicant, its users or the securities market, revocation is necessary, it may revoke the approval immediately and issue a notice of revocation containing grounds for revocation, after the effective date of revocation. If the response of the applicant is found to be satisfactory, then SEBI may reinstate the approval and allow the applicant to continue participating in the Regulatory Sandbox. 48. Upon revocation of an approval, the applicant must: i) Immediately implement its withdrawal plan to cease the provision of the product, process, service or solution to new and existing users; ii) Notify its users about the cessation and their rights to grievance redressal, as applicable; iii) Comply with .....

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Revised Framework for Regulatory Sandbox - SEBI

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..... e tested 4.2 The test criteria and expected outcomes 4.3 Describe the use case that will be tested in the sandbox 4.4 Define success for a test and the Key Performance Indicators that will indicate a successful test 4.5 Probable start and end date of sandbox testing 4.6 Details of users including but not limited to: Maximum number of participating users Profile of users (retail, institutional, etc.) Process for enrollment and acquisition of users Requirement of KYC User awareness required/conducted Whether consent required /has consent been obtained Arrangements to limit loss if applicable e.g. Margin, stop loss thresholds etc. User compensation if any Value at risk per user Transaction thresholds per user 4.7 Risk assessment and mitigation options including but not limited to: Failure of sandbox testing Financial loss to the users Cyber attack AML and terrorism financing 4.8 Any instance of a legal and regulatory non-compliance for any other regulator during the sandbox testing 5. Legal and Regulatory Assessment: other regulators 5.1 Legal and regulatory status (registration, licensing, authorization, approval, recognition etc.) 5.2 Legal opinion sought on the proposed Innovative .....

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Revised Framework for Regulatory Sandbox - SEBI

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..... E-I 2. About the proposed solution Sr. No. Description Response 2.1 Please submit the details of the risks observed during Stage-I testing along with steps taken to mitigate those risks 2.2 Please provide the adverse feedback received from the users participated during Stage-I and steps taken to address the same 3. Sandbox readiness during Stage-II Sr. No. Description Response 3.1 The test criteria and expected outcomes 3.2 Describe the additional use case that will be tested in the sandbox based on the learning from Stage-I testing 3.3 Define success for a test and the Key Performance Indicators that will indicate a successful test 3.4 Probable start and end date of sandbox testing 3.5 Details of users including but not limited to: Number of participating users Profile of users (retail, institutional, etc.) Process for enrollment and acquisition of users Requirement of KYC User awareness required/conducted Whether consent required /has consent been obtained Arrangements to limit loss if applicable e.g. Margin, stop loss thresholds etc. User compensation if any Value at risk per user Transaction thresholds per user 3.6 Risk assessment and mitigation options including but not limite .....

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