Reimagining Africa's FinTech Future with Regulatory Sandboxes.
Rethinking Africa's Financial Future with Regulatory Sandboxes.(part 1)
INTRODUCTION
The first in our three-part series takes a look at how regulatory sandboxes can revolutionize access to financial services and bridge the gaps within African economies.
When you hear the term ‘Sandbox’ what comes to your mind?
The term sandbox comes from the idea of a child’s sandbox, In which the sand and toys are kept inside a small container or walled area so children can play safely. In North America, this common plaything is called a sandbox while in the Uk you will hear it called a ‘Sandpit’
So in practical terms, we can look at a sandbox as a place, area, or environment that provides opportunities for variation and experimentation in a way suggestive of children playing in a sandbox.
Through a sandbox, regulators can carefully monitor digital products, services, and business models in a live testing environment, enabling firms to bring innovations to market more quickly and readily.
We will be considering the essence of regulatory sandboxes and their introduction into Africa as a whole in a three-part series as listed below:
Part 1: Thinking differently about African financial regulations and setting up a dynamic system to ensure continuous development. #RegulatorySandbox
Part 2: How new models of regulation can help African economies grow and create more opportunities. #RegulatorySandbox
Part 3: What it means to create a regulatory environment that empowers African businesses and citizens. #RegulatorySandbox
Follow our three-part series as we shed light on the possibilities that are enabled by creating a Regulatory Sandbox in Africa.
What exactly are regulatory sandboxes?
A regulatory sandbox is a framework set up by a regulator that allows FinTech startups and other innovators to conduct live experiments in a controlled environment under a regulator’s supervision.
Regulatory sandboxes enable in a real-life environment the testing of innovative technologies, products, services, or approaches, which are not fully compliant with the existing legal and regulatory framework. They are operated for a limited time and in a limited part of a sector or area. The purpose of regulatory sandboxes is to learn about the opportunities and risks that a particular innovation carries and to develop the right regulatory environment to accommodate it. Experimentation clauses are often the legal basis for regulatory sandboxes.
The first regulatory sandbox was launched in 2015 in the U.K. and generated great interest from regulators and innovators around the world. After Kenya, Sierra Leone is the second African country to launch a Sandbox Framework to support live testing of innovation. At the beginning of 2018, there were more than 20 jurisdictions actively implementing or exploring the concept. Not all jurisdictions need a sandbox, Their Suitability depends upon the regulatory objectives, the flexibility of the existing regulatory regime, the resources and capacity of the regulation, and the types of innovations emerging in the market. Under certain circumstances, they have the potential to speed the regulatory adaptation towards an enabling framework in support of inclusive, innovative finance.
Regulatory sandboxes may open space for improvements in financial inclusion through innovations—for example, biometric ID, alternative credit scoring, e-KYC, blockchain-based remittances, and new business models serving marginalized clients. This is important because the success of financial inclusion largely hinges on the capacity of the financial sector to innovate. Innovation can address traditional barriers to financial inclusion.
What are the benefits for startups, financial companies, or investors in Africa?
1. The implementation of Sandbox may allow some of the FinTech, RegTech, and InsurTech companies to enjoy the testing period so that they can gradually and progressively achieve the requirements for obtaining an ordinary license. In this way they would not be required to meet all these requirements at the outset, making many of the disruptive technology business models available to the market and helping them to flourish in a safe and legal manner.
2. Sandbox seeks to help firms understand how the regulation applies to them and provide greater regulatory certainty to encourage innovations that have positive benefits to consumers.
3. Today many entrepreneurs choose to launch their startups based on the ease of implementation of their business model, evaluating licenses and regulatory frameworks in the first place.
4. Complex projects acceleration
One of the first obstacles faced by FinTech entities is precisely the complex bureaucratic system, especially in the first stages of life of these new firms. A controlled testing environment would help lighten the bureaucratic burden and also provide legal certainty to those entities that intend to operate in the market but are unaware of traditional financial regulations.
Regulatory Sandbox: Benefits to Government Regulators in Africa
Regulatory update
Supporting innovative firms to get regulatory certainty, allows Government Regulators to identify and appropriately intervene to address barriers to entry and areas of regulatory uncertainty more broadly through issuing guidance and engaging with the FinTech ecosystem to support and encourage innovation.
Regulatory Anticipation
The fact that the regulator is in constant contact with the latest innovation can help to anticipate regulations or new supervision that allows anticipating new existing business models by accelerating innovation or limiting risks for users.
Regulatory Sandbox: Competitive advantage
It has been shown that those countries with Regulatory Sandbox tend to attract more companies, talent, and investment because they support innovative business models that can be part of a safe environment.
To be continued….
in the next part series, we will explore how new models of regulation can help African economies grow and create more opportunities. Be the first to be informed about our new publication by following us on our social media pages https://linktr.ee/beeplegaltech