- hybrid Cohort and Rolling models to be applied
As further evidence of its commitment to providing a robust regulatory regime for the rapidly evolving digital financial landscape, the Bank of Ghana (BoG) has – a year after its pilot – unveilled its regulatory sandbox framework.
A regulatory sandbox is an arrangement by a regulator that allows financial technology (FinTech) startups and other innovators to conduct live, time-bound experiments in a controlled environment under a regulator’s supervision.
The move, spearheaded by the Bank’s FinTech and Innovation Office, comes on the back of passage of the Banks and Specialised Deposit-Taking Institutions Act, 2016 (Act 930) and the Payment Systems and Services Act, 2019 (Act 987), with the financial service watchdog convinced that “a conducive environment has been created to spur innovative digital financial services without risking the financial service industry’s stability”.
In a communique to this effect, the BoG said: “To this end, the Bank of Ghana has established a regulatory and innovation sandbox as an important tool for evolving a regulatory framework supportive of responsible innovations and for nurturing new business models.
“This framework enables small-scale, live testing of innovative financial products, services and business models by eligible financial service providers and startups (operating under a special exemption, allowance or other limited, timebound exception) in a controlled environment under supervision of the Bank of Ghana.
“By this arrangement, innovators are permitted to temporarily test new ideas without being subjected to the full set of regulatory requirements applicable outside the sandbox while addressing users’ and the regulator’s respective concerns,” it added.
With potential risks to customers that may arise from testing the innovative product, service or business model in the regulatory sandbox, the BoG indicated that consumer protection mechanisms will be paramount in its assessments.
Among other things, the regulator disclosed that the sandbox will be operated in a hybrid model, fusing the Cohort and Rolling models. Explaining, the BoG stated that the Cohort model allows prospective applicants to submit applications during a specific application window.
Under this model, the regulator determines the subject matter areas for publication, for which innovative products, services and business models will be admitted into the regulatory sandbox are subject to meeting all applicable requirements. Conversely, the Rolling model allows entities seeking to test innovative products, services and businesses outside the subject areas published for a cohort to apply at any time, the BoG said, adding that this model will be exercised solely at its discretion.
Since its introduction in 2016, more countries across the globe have continued to introduce regulatory sandboxes. A World Bank survey in 2020 indicated that, globally, there were 73 sandbox programmes across 57 jurisdictions, with seven in Africa.
Within that time, a growing body of literature suggests that when properly implemented, regulatory sandboxes will enhance the FinTech ecosystem and drive financial inclusion.
“Regulatory sandboxes have only been in operation for the last four years, and the results and lessons learned are still developing. They can prove useful tools when properly designed, implemented and monitored,” the World Bank said in 2020. “Sandboxes can bring substantial benefits in terms of establishing a FinTech market, but they must be adapted to each country’s context.”