Regulatory sandbox to promote innovation

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has issued guidelines to promote innovation in financial services in insurance, non-banking finance as well as the capital markets

The Regulatory Sandbox Guidelines, 2019 is primarily applicable for new products, services or business models which have not been addressed under existing laws and regulations.

Under the guidelines, the applicants can apply for inclusion in regulatory sandbox implementation where they can test their innovation solutions in a specified time.

The guidelines have been issued in the wake of growing digitally based businesses where the operator works as an intermediary or sells knowledge-based solutions to other businesses.

“The world is moving towards new modes of entrepreneurship, and it has been proven that many innovators do not have the resources or capacity to establish large businesses, so now the SECP will facilitate them,” said an official of the regulator, adding, “Besides the growth of technology is opening new avenues in all sectors.”

The applications for experimentation through regulatory sandbox can be sent by all entities registered with SECP, fintech players, technology providers or any such company.

Even the unregistered startups with the intent to get registered in case of successful testing in order to scale can also apply under the regulations and so can the well-known companies or any other persons as deemed appropriate by the commission.

The potential categories to implement innovation includes innovative product development or distribution, alternate financial intermediation platform such as peer-to-peer lending etc, crowd funding which may include equity, debt, donation, rewards, digital assets, innovative insurance underwriting, insurance policy servicing, alternate risk transfer mechanisms, financial/robotic advisory, claims adjudication and payments, artificial intelligence and any other category that may be accepted by the SECP.

The application should include potential benefits of the proposed product/service for consumers and financial markets and the candidate needs to justify: Why a Regulatory Sandbox test is required with perceived outcomes and objectives?

It should also state a clear testing methodology, limitation of scale and relevant controls, evidence that the product/service is sufficiently mature to be tested in a live environment, evidence that the applicant has adequate arrangements and resources to support live testing, including measures to protect the interests of investors, consumers and other market participants if the test fails.

The approved participant will be allowed to operate in the sandbox environment for a period of six months, under the monitoring of the commission.