RBI's fourth regulatory sandbox cohort on financial frauds

The Reserve Bank of India (RBI) will open the fourth cohort under the Regulatory Sandbox (RS) on prevention and mitigation of financial frauds, governor Shaktikanta Das said.
The central bank has so far introduced three cohorts. Six entities have successfully exited the first cohort on ‘Retail Payments’ while under the second cohort on ‘Cross Border Payments’, eight entities are undertaking tests. The application window for the third cohort of ‘MSME Lending’ is currently open.

"With a view to preparing the fintech eco-system, it is proposed that the topic for the fourth cohort be ‘Prevention and Mitigation of Financial Frauds’. The focus would be on using technology to reduce the lag between the occurrence and detection of frauds, strengthening the fraud governance structure and minimising response time to frauds,” governor Das said in a post- policy statement. “The application window for this cohort would be opened in due course."


Regulatory sandbox refers to live testing of new products or services in a controlled/test regulatory environment for which regulators may permit certain relaxations for the limited purpose of the testing.

Based on the experience gained and the feedback received from stakeholders, RBI will facilitate ‘On Tap’ application for themes of cohorts earlier closed.

"This measure is expected to ensure continuous innovation and engagement with industry to enable a proactive response to the rapidly evolving fintech scenario." RBI said. The modified framework will be released later on Friday.

In a report released last month, global fraud consultancy Kroll said more Indian companies have acknowledged fraud attacks. The survey found that 65% of companies acknowledged that their organization was a victim of fraud in 2019, compared with 57% respondents in the 2019 edition.

Moreover, over 70% of respondents believed that COVID-19 increased the risk of fraud and almost two-thirds of respondents feel it will continue to increase the risk of fraud in the coming year. The survey was conducted between August and September 2021.

Kuntal Sur, financial risk and regulatory leader at PWC, said the regulator's approach is progressive.

"It allows the participants to showcase their products, solutions, capabilities in a controlled environment to test their effectiveness,” Sur said. “It will help highlight their weakness as well as shed light on over-regulation if any. This is a continuation of the RBI's policies and another step in the right direction. Already, India's payment ecosystem is ahead of even the developed markets and is a global success story."

In November, RBI said it received applications from 32 entities for the first cohort, of which six were selected for the test phase. Two entities started testing their products on November 16, and the remaining companies were expected to start the test phase shortly, it had said.