The International Financial Services Centres Authority (IFSCA) has issued a draft public consultation paper on Fintech Sandbox Framework in IFSC, released on September 19, 2025. The proposed FinTech Sandbox Framework aims to create a dedicated regulatory approach for FinTech Sandbox Entities seeking access to regulatory sandboxes in IFSC. This framework seeks to foster financial innovation by providing structured facilitators such as regulatory sandboxes, inter-operable sandboxes, and regulatory referral mechanisms for fintech use cases in banking, capital markets, insurance, funds, and related technology solutions.
Key Features of the Draft Framework
Eligibility: The framework is open to domestic (Indian) and foreign fintech entities meeting specific criteria, including company, LLP, or recognized startup / incubator status. Applicants must use innovative technology in financial products, services, or tech-enabled solutions regulated by IFSCA.
The proposed FinTech idea(s)/ product(s)/ solution(s) by the Applicant must present an innovative idea/ product / solution that significantly enhances existing financial services or products and there is a genuine need for testing the idea/ product/ solution in a controlled environment.
Permissible Activities: Eligible applicants may test use cases in banking, capital markets, insurance, funds, payments, pensions, commodities, compliance, and more as specified in the annexure.
The proposed FinTech products or services shall be directly or indirectly linked to the following activities regulated by the IFSCA:
- Capital Markets including but not limited to Corporate Finance, Sustainable Finance, Market Infrastructure Institutions, Investment Funds
- Banking including but not limited to Finance Company, Payment Services (PSs) and Payment & Settlement Systems (PSSs)
- Insurance
- Pension
- Metals and Commodities
- Foreign University
- Financial Support Services
- Compliance and supervision of the areas mentioned from (i) to (vii)
- Any other area permitted by the IFSCA
Sandbox Types:
- Regulatory Sandbox (FRS) allows live market testing with boundary conditions and possible regulatory relaxations.
- Innovation Sandbox (FIS) enables isolated development using market data (not live customers).
- Inter-Operable Regulatory Sandbox (IoRS) provides cross-sector testing with IFSCA as the principal regulator in multi-regulator scenarios.
- Overseas Regulatory Referral (“FinTech Bridges”) supports collaboration with overseas regulators for cross-border innovation.
Application and Testing Process
- Two-Stage Application: Preliminary application through the SWIT portal for basic assessment, followed by a detailed final application (with fees) for eligible entities.
- Approval and Testing: In-principle approval is granted subject to conditions (including a requirement to have a Testing Partner). The sandbox test duration is up to 12 months, extendable by 6 months at IFSCA’s discretion. Entities must inform users of risks, obtain written acknowledgment, and report test outcomes.
- Post-Testing and Exit: Limited Use Authorizations and regulatory relaxations lapse after testing. Early exit and recordkeeping obligations are specified, with clear user protection requirements before discontinuation.
Regulatory Relaxations, Reporting, and Oversight
- Regulatory Exemptions: Sandbox applicants may request specific regulatory relaxations, subject to IFSCA’s approval.
- Reporting and Compliance: FinTech Sandbox Entities must maintain robust records, submit detailed interim and final reports during and after the testing phase, and comply with all relevant regulatory and risk management standards. Notification requirements exist for regulatory actions, financial reporting, and adverse findings.
- Enforcement: IFSCA retains the authority to revoke sandbox approvals for non-compliance, misrepresentation, technical issues, or public interest reasons—with immediate discontinuation and exit provisions if needed.
Public Consultation and Feedback
The draft framework is open for public feedback and suggestions until October 10, 2025. The circular can be accessed here.
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