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March 05, 2024

BSP evaluates six fintech service providers in regulatory sandbox

The Bangko Sentral ng Pilipinas (BSP) has disclosed that six BSP supervised financial institutions (BSFIs) and non-supervised entities have entered its “regulatory sandbox” for the evaluation of their innovative financial technologies in electronic or e-money and virtual asset services, targeting “fit-for-purpose financial services” for unserved and underserved communities. The BSP, without revealing the applicants, mentioned that these include BSFIs, third-party service providers, and new players undergoing sandbox implementation pending initial screening. A regulatory sandbox, a controlled testing environment supervised by financial regulators, facilitates small-scale live testing of innovations by private firms.

The six entities have proposed solutions employing diverse technologies such as robotics process automation, decentralized ledger technologies, and application programming interfaces (APIs) in the domains of e-money and virtual asset services. The BSP maintains continuous engagement with applicants during further evaluations. The startups and innovators among the six applicants will undergo experimentation with new financial products and services within a controlled environment. The sandbox framework follows a four-stage process: application, evaluation, testing, and exit, with projects running for 12 months. After this period, the BSP will decide on the broader or mass adoption potential of the sandboxed product or service.

In September 2022, the BSP approved the Regulatory Sandbox Framework as Circular No. 1153 to foster an inclusive digital financial ecosystem. This framework institutionalizes the test-and-learn (T&L) approach, serving as the central bank’s mechanism since 2004 to explore game-changing technologies supporting growth, development, and bridging financial inclusion gaps in the Philippines. The sandbox for digital finance innovations aligns with the National Strategy for Financial Inclusion 2022–2028. Circular No. 1153 provides guidelines for a controlled, time-bound, live testing environment, featuring regulatory waivers at the BSP’s discretion, and may involve operational limits for participating firms.

The T&L system enables BSFIs, third-party service providers, and new players to offer financial products and services using new technology to a limited number of customers within a controlled environment. The framework allows sandbox participants to explore new technologies’ potential “without posing significant risks to financial stability or harming consumers.” The BSP aims to balance the perceived benefits of emerging technologies while managing associated risks through the regulatory sandbox.

Additionally, the circular introduces a simplified approach, the “Regulatory Sandbox Lite,” with a shorter timeline, available exclusively to BSFIs involving financial products or services already within existing regulations. The BSP’s objective is to create an environment for responsible innovation, fostering the development of an inclusive digital financial ecosystem complemented by a robust risk management system. The sandbox experimentation, inherent with strong consumer protection, data privacy, and data protection elements, emphasizes informing customers about the sandboxed nature of products or services being tested.

BSFIs must not only ensure customers are informed about potential risks and implications but also commit to data sharing during the experimentation process. The circular includes an oversight framework, establishing units within the central bank termed the “Sandbox Oversight Team” to supervise various sandbox activities. While experiments in the developer sandbox are internally driven, regulatory sandboxes are facilitated and monitored by the BSP, involving regular check-in meetings with applicants or proponents. Activities within the regulatory sandbox may also be initiated by the BSP, ensuring a comprehensive and supervised testing environment.