INTRODUCTION
Regulatory Sandboxes are a relatively new concept that flourished in 2016, with the creation of the first sandbox. There were 73 fintech sandboxes in over 57 countries and half of them were established in 2018-19. Regulatory Sandboxes are controlled environments for new companies and products to be rolled out to a limited number of users to check their viability. Regulatory Sandboxes were created to review the regulatory aspect and respond to the fast-changing and rapid growth of technology. Law follows innovation and not the other way around, as first the technology is developed and then the laws governing it are created and perfected over time.
WHAT ARE REGULATORY SANDBOXES?
Regulatory Sandboxes (RS) are made for live testing of new products in a controlled regulatory environment in which the regulatory body may or may not permit relaxation for purpose of the trial. RBI launched its regulatory sandbox for new and upcoming fintech technology in 2016. The RS’s goals are to enhance efficiency, encourage ethical innovation in financial services, and benefit customers. The usage of RS should be original, should address a problem, should benefit customers, and should incorporate new or developing technology. Regulatory sandboxes can be theme based and are open for a limited period during which the live testing can be done after its approval.
The first cohort by RBI’s regulatory sandbox was on ‘retail payments’, a theme-based sandbox. 6 companies took part in this, Based on mutually agreed-upon test scenarios and anticipated results, the products were assessed. All of the products have been determined to be viable under the testing parameters established by the Regulatory Sandbox. To describe the eligibility criteria for participating in regulatory sandboxes are –
- Genuineness of innovation – The product/ service should be an innovation or a major improvement to an already existing one.
- Genuineness of testing – The product/ service cannot be completed or developed without the regulation/ laws being relaxed.
BENEFITS
- Serve as evidence for making laws – Sandboxes can be helpful in nations where regulatory requirements are unclear or absent, or where they impose excessively high entry barriers compared to the hazards.
- Ease of market entry by companies – regulatory sandbox will aid companies in understanding market barriers and regulatory restrictions beforehand.
- Chance to improve- It allows the company to roll out the product in a controlled environment before it is presented in the market. This allows any bugs/ flaws to be tackled before the product goes public.
- Financial inclusion– sandboxes can make significant improvements in financial inclusion and financial reach in addition to speeding up innovation and technology adoption. Microfinance, creative small savings, mobile banking, and other digital payments are among areas that could benefit from the RS.
- Increased range of products for consumers- at the end of the day consumers are the ones who will benefit from these, as better solutions and products will ease consumers’ problems.
RISKS/ LIMITATIONS
- The uneven playing field for companies – there might be bias for companies who were selected for the sandboxes and those who were not as it is completely in the hands of regulators.
- Discretional judgments- Case-by-case Customized authorizations and regulatory easings can take time and require judgment. This risk can be reduced by treating applications openly and making decisions by predetermined guidelines.
- Might mislead expectations – as sandbox has a limited scale and no long-term assessment is available. This might give wrong expectations to the company.
- Post testing- even after the product has been tested in the regulatory sandbox it may still require approval of regulatory bodies for wider application usage.
METAVERSE
The metaverse is a virtual world where a person may enter with an avatar. It may also consist of augmented reality, which is a mix of the virtual and real world. The metaverse can be described as a place where people can use their digital avatars to explore and buy new places. A wide range of smaller businesses and startups, as well as many huge corporations like Nvidia, Unity, Roblox, and even Snap, are constructing the necessary infrastructure to build better virtual worlds that more closely resemble our real-world experiences. A wide range of smaller businesses and startups, as well as many huge corporations like Nvidia, Unity, Roblox, and even Snap, are constructing the necessary infrastructure to build better virtual worlds that more closely resemble our real-world experiences.
LAW IN METAVERSE
Currently, more than 160 companies are operating with a continuous increase in numbers in the metaverse, without a regulatory framework, they may continue to work without any supervision. Concerns over privacy and data remain a big issue as the virtual world may give anonymity but at the same time may be a scapegoat from regulations. Tracking and privacy issues will start to come up as the virtual world grows.
- Intellectual property laws – Inventions, trademarks, and other works of the imagination are all protected by intellectual property laws. Avatars, virtual homes, and digital artwork are examples of virtual products and services that are subject to intellectual property law in the Metaverse. The major part of metaverse would be the copyright law as it protects the original work of the author, in metaverse digital avatars, properties, artwork, etc. will exist. But what if that same thing exists in the real world, would creating a digital avatar or property be an infringement of copyright, will the same laws apply in virtual land which is in the real world, all these questions need to be tackled.
- Criminal laws – In the real world we have IPC and CRPC, but in a virtual world, the laws may not be applicable. A woman entered a virtual world/ metaverse which was created by meta and alleged that her avatar was gang raped within 60 seconds of joining. Now the question arises would the players be charged with the offense of rape as per IPC, would the punishment be the same or less if any? laws regarding the metaverse are essential a lawless land would be far too dangerous for anyone even if it is virtual.
- IT Act- As of now Information technology act provides for cyberbullying and cyberstalking but in the virtual world other crimes might be considered more heinous such as tampering with the source code, data theft, transmitting malware, and sexually explicit content, and digital financial crimes, etc. The continuous rapid advancement of technology will be a challenging task for the regulators to keep pace with as every tech innovation requires a different set of laws to govern them.
- Torts and defamatory practice – In the virtual world harming someone might cause liability in the real world too. If a person is tortured mentally or harmed by any act of the other person he may claim liability. Making any defamatory statements in the virtual world will cause harm to a company’s reputation in the real world too, hence making the person liable for libel or slander.
Other than the above-mentioned laws, many others will play an important role such as contract law, company law, civil law, and property law.
TACKLING THE PROBLEM
The necessity for control will grow as the metaverse develops and begins to resemble the actual world. Asset classes that emerge in the metaverse may eventually similarly attract value to how such assets do in the physical world, necessitating the same management structures for oversight and governance. More will be at risk, so more will need to be protected. Regulations and laws take a long time to develop and adapt as regulations come up, technology advances simultaneously and then laws need to be amended with it.
- Setting up standards – by having compliance officers and regulators, some ground rules can be made which would apply to all users and if they are not followed restrictive actions can be used. Using KYC for the authenticity of users will help in minimizing wrongful gameplay and any other abusive or obscene activity.
- Financial security – financial security is a major concern and to tackle this, the financial regulator can be put into place, also using verified payment methods and stable tokens/ coins will help in evening the playing field. Wallet transfer fees or purchasing of assets in the virtual world needs to be overseen and any kind of underhand practices should be prohibited.
- Regulatory Sandbox – regulatory sandboxes can be a good way for live testing products and even regulations. By creating sandboxes, the authorities will be able to find out how the laws need to be created and how will they be enforceable and wrong actions are detected.
Author(s) Name: Rishabh Sharma (Centre for Legal Studies, GIBS, IP University)
