Tech Regulations & Govt | |
Tech Regulations & Govt | |
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Wednesday, July 31, 2019
10:49AM / by Capital Market Authority, Kenya / Header Image
Credit: Kbc.co.ke
Following the approval of the Regulatory
Sandbox Policy Guidance Note (Regulatory Sandbox PGN) with effect from 26 March
2019, the Capital Markets Authority (CMA) has been receiving applications from
fintech firms seeking to be admitted into the Regulatory Sandbox. As at July
2019, three applicants have been admitted to live test innovative solutions
with the capacity to deepen and enhance the efficiency of capital
markets.
Innova Limited has been approved to test
its cloud-based data analytics platform designed for use by Investors, Fund
Managers, Custodian Banks, Actuaries, Pension Administrators and Regulators.
The approval restricts the testing period to 12 months. The second fintech,
Pezesha Africa Limited has been approved to test an internet-based
crowd-funding platform through which investors can provide loan facilities
structured as loan notes (debentures) for Small and Medium Enterprises (SMEs).
The approval restricts the testing period to 12 months. The third fintech firm
admitted has elected to remain anonymous during its three months test period,
except to its closed group of test subjects, an option provided in the
Regulatory Sandbox PGN.
CMA Chief Executive Mr. Paul
Muthaura observed that Innova and Pezesha will be updating the Authority on the
milestones achieved, challenges faced and mitigation measures implemented in
line with the test plans submitted to the CMA during the application process.
‘The Regulatory Sandbox allows live
testing of innovations under a less onerous regulatory regime and is expected
to attract fintech companies and existing capital markets licensees to test the
application of technology to financial services. The admission of the three
firms is an important milestone noting that the Authority had set itself a
target to admit five firms to the Regulatory Sandbox by 2023’, said Mr.
Muthaura.
To enhance the Authority’s investor
protection mandate, Sandbox participants are required to comply with minimum
regulatory requirements prescribed by the Regulatory Sandbox Policy Guidance
Note such as submission of test plans, which outline key test objectives,
testing metrics, performance indicators, and safeguard and remedial measures
for test clients. The PGN specifies that the Authority can revoke or suspend an
approval to participate in the Regulatory Sandbox at any time before the end of
the test period and can take enforcement action against a participant in breach
of the regulatory requirements.
Upon exit from the Sandbox,
participants could be granted a license or approval to operate in Kenya subject
to compliance with existing legal and regulatory requirements. The Authority
may in the alternative grant permission to operate in Kenya subject to
compliance with the terms of a letter of no objection. He observed, ‘where
there is need for a broader legal or regulatory reform, we may adopt new
regulations, guidelines or notices pursuant to Section 12 and 12A of the Capital
Markets Act, based on insights gained from the Regulatory Sandbox test.’ A
denial of permission to operate in Kenya under prevailing legal and regulatory
requirements may also be issued.
Mr. Muthaura noted that at minimum,
Sandbox applicants need to be companies incorporated in Kenya, or existing
licensees of the Authority or other capital markets regulators. Fintech firms
are assessed for admission based on their intent to offer innovative products,
solutions or services with the potential to deepen Kenya’s capital markets
following successful exit from the Sandbox.
The Regulatory Sandbox serves to
continuously improve CMA’s understanding of emerging technologies as well as
the risks and opportunities that the innovations portend for investors, financial
institutions and the regulator. The insights from the tests allow for a more
evidence-based approach to regulation.
The Regulatory Sandbox is not an
incubation center, physical or virtual space. It is not applicable for proposed
products, services or business models that are already clearly addressed under
existing laws and regulations.
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