Technology now plays a pervasive role in all sectors of the global economy, including the financial sector. To ensure the smooth and efficient operation of this technology, regulatory bodies around the world have consistently put in place regulatory frameworks.
Fintech, a type of technology, has brought numerous innovations and disruptions to the banking system not only in Nigeria but around the world, driving home financial inclusion.
To ensure the smooth operation of Fintech Startups, the Central Bank of Nigeria has put in place a framework for test running their services and products before they are released to the market.
In this regard, we would like to briefly highlight some of the key provisions of the CBN framework for Regulatory Sandbox Operation.
Some of the highlights of the Framework for Regulatory Sandbox Operation
The CBN Framework specifies the objectives in its opening chapeau after the introduction paragraph. The objectives are:
- To increase the potential for innovative business models that advance financial inclusion;
- To reduce time-to-market for innovative products, services, and business models;
- To increase competition, widen consumers’ choice and lower costs;
- To ensure appropriate consumer protection safeguards in innovative products;
- To clearly define the roles and responsibilities of stakeholders and the operations of the Sandbox for the Nigerian Payments System industry;
- To ensure adequate provisions in regulations to create an enabling environment for innovation without compromising on safety for consumers and the overall payments system; and
- To provide an avenue for regulatory engagement with FinTech firms in the payment space, while contributing to economic growth.
In consideration of the roles, the financial technology plays in financial sector in facilitating payment and driving financial inclusion, the Central Bank of Nigeria has realised as its core duty to stay up to date in its overnight functions in seeing to the efficiency of these financial technologies, hence the setting of the above objectives in place for the framework.
Eligibility of Applicants and Approval
The Framework provides for eligibility of the sandbox participants. It therefore means that the participants must meet up with the requirements set in place before they can eventually partake in the sandbox operation.
The Eligibility criteria are as follows:
The product, service or solution of a participant must be innovative with clear potential(s) to:. Improve accessibility, customer choices, efficiency, security and quality in the provision of financial services; or enhance the efficiency and effectiveness of Nigerian Financial Institutions management of risks; or address gaps in or open up new opportunities for financial benefits or investments in the Nigerian economy.
Further more, a participant must also ensure that applicants will provide the proposed project within a limited transaction (value and volume) for better risk management and mitigation. The limits shall not be exceeded during the testing period.
Also the applicant has conducted an adequate and appropriate assessment to demonstrate the usefulness and functionality of the product, service or solution and identified the associated risks which should be devoid of adverse effect to existing structures and consumer experience has the necessary resources to support testing in the sandbox. This includes the required resources and expertise to mitigate and control potential risks and losses arising from offering of the product, service or solution.
Lastly the applicant should have a business plan to show that the product, service or solution can be successfully deployed after exit from the sandbox.
The sandbox operation is open to both the existing CBN licensees and other local companies.
The Central Bank of Nigeria will place advert on its website and as well in the local newspapers inviting applicant into the sandbox operations. Application would be through an official email address email@example.com and as well as other documentary requirements to be fulfilled by the applicants.
Receipt of application shall be acknowledged to applicants within 5 working days. The Central Bank is expected to inform an applicant of its eligibility and approval to participate in the sandbox, 45 working days after the closure of the application window.
Risk assessment and customer safeguards must be ensured by all participants during the sand operations.
The Framework is as well contain the operational requirements, filing requirements, reporting requirements while in the sandbox, conditions for extension and exits from the sandbox and evaluation and review of an approval. All these are put in place to see the efficacy of the framework which would stand the test of time in regulating sandbox operation for Fintech in Nigeria.
The Framework makes provision for what is called Sandbox Cohort. According to the Framework, the term cohort refers to the group of innovators that share the characteristic of having been allowed to enter the Sandbox at the same time for the same period.
The framework clearly defines the responsibilities of both the Central Bank of Nigeria and participants, as well as the positioning of customer safeguards and confidentiality.
The Framework would encourage Fintech innovation as well as effective service delivery in the financial sector, thereby driving home financial inclusion.