Sunday , August 14 2022

CBN Issues Regulatory Sandbox for Fintech Industry, Safeguard Consumers

The Central Bank of Nigeria (CBN) yesterday released the draft framework for the regulation of Sandbox operations.

Aimed at controlling innovation in the fintech sector, the new sandbox will contain a formal process for firms and startups to conduct live tests of all-new, innovative products, services, delivery channels or business models

The regulation seeks to set standards for live trials or demonstration of new innovative products and financial technology in the industry.

The CBN said the move became necessary in view of the increasing consumer appetite for payment solutions and emerging disruptive technology in the financial services space as well as the need to ensure new, more flexible ways of engaging with the industry.

The draft exposure among other things highlights the set of consumer safeguards in order to mitigate the risk to consumers participating in the testing exercise.

With the new system, all fintech innovation will have to go through a controlled environment with regulatory oversight, subject to appropriate conditions and safeguards set by the CBN.

The sandbox application process is open to both existing CBN licensees such as financial institutions and other companies, including technology and telecom companies intending to test innovative payments products they want to be licenced or acceptable to the CBN.

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The process will further outline the nature of the risks identified and will be proportionate to the impact and probability of the risks occurring or causing consumer disadvantage.

The apex bank in a circular to deposit money banks and mobile money operators and payment service providers, which was signed by both CBN Director, Payments System Management Department, Mr. Musa Jimoh, and Director, Financial Policy and Regulation and Department, Mr. Kelvin Amugo, stated that the proposed framework would enable the bank to stay abreast of innovations while promoting a safe, reliable and efficient payments system to foster innovation without compromising on the delivery of its mandate.

The CBN said the framework further defined the establishment, rules, and operations of a regulatory sandbox for the Nigerian payments system in order to promote effective competition, embrace new technology, encourage financial inclusion and improve customer experience, with a view to engendering public confidence in the financial system.

The objective is to among other things, increase the potential for innovative business models that advance financial inclusion; reduce time-to-market for innovative products, services, and business models; increase competition, widen consumers’ choice and lower costs; ensure appropriate consumer protection safeguards in innovative products as well as clearly define the roles and responsibilities of stakeholders and the operations of the sandbox for the Nigerian Payments System industry.

The guideline provides further a sandbox applicant to identify the potential risks to financial institutions and financial consumers that may arise from the testing of the product, service or solution in the sandbox and propose appropriate safeguards to address the identified risks.

However, the CBN noted that in assessing the risks and evaluating the proposed safeguards, it would give due regard to the preservation of sound financial and business practices consistent with monetary and financial stability as well as applications that promote fair treatment of consumers and protect the confidentiality of customer information.

According to the apex bank, promoters of new innovative financial offerings will be required to “set consumer protection safeguards, to guarantee consumer protection.”

It said: “Consumers participating in the testing phase need to be made aware of their rights and especially, be provided with information and contact details of the sandbox to report any complaint or problem they experience.

“The participants shall ensure proper maintenance of records during the testing period to support reviews of the test by the bank.”

About Bukola Olanrewaju

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