Ghana launches regulatory sandbox for fintechs
In August 2022 the Fintech and Innovation Office of the Bank of Ghana (BoG) launched a regulatory and innovation sandbox pilot (the regulatory sandbox) in response to requests for innovation in the banking and financial services sector.
WHAT IS A REGULATORY SANDBOX?
The regulatory sandbox is a supportive policy environment enabling financial service providers to test innovative products, services and business models in a controlled regulatory environment. It acts as a safe space for startups and businesses since regulators usually relax specific legal and regulatory requirements to enable financial technology (fintech) players to experiment with innovative financial products or services.
The objective of the regulatory sandbox is, to among others, “enable small scale, live testing of innovative financial products, services and business models by eligible financial service providers and startups in a controlled environment under the supervision of BoG”. This means that innovators are permitted to test new ideas without being subjected to the full set of regulatory requirements applicable outside the regulatory sandbox. The regulatory sandbox will promote a progressive financial service industry without compromising financial stability.
WHAT THE REGULATORY SANDBOX IS NOT
The regulatory sandbox is neither a permanent licence to operate nor a free pass to operate without BoG’s oversight or supervision.
WHO CAN PARTICIPATE IN THE SANDBOX?
BoG-licensed banks and specialised deposit-taking institutions (SDIs) such as financial holding companies, savings and loans companies, microfinance companies, payment service providers and dedicated electronic money issuers are eligible to apply to participate in the regulatory sandbox. Banks and SDIs that wish to participate in the regulatory sandbox and which seek to introduce products that are derived from the permissible activities listed under the Banks and Specialised Deposit-Taking Institutions Act, 2016, require BoG’s prior written approval.
Also, unlicensed fintech start-ups (either solitary or in partnerships with other licensed entities) are eligible to apply to participate in the regulatory sandbox. Foreign fintechs are not permitted to participate in the regulatory sandbox; however, a foreign company which incorporates a subsidiary in Ghana and satisfies the 30% Ghanaian equity participation requirement as well as all other legal requirements, may apply to participate in the regulatory sandbox.
In considering the applications to participate in the regulatory sandbox, BoG has indicated that preference will be given to products and services leveraging on the following: ● Blockchain technology;
● Remittance products;
● Crowdfunding products and services;
● Electronic know-yourcustomer platforms;
● Regulatory technology;
● Supervisory technology
● Digital banking, products and services targeting women ’ s financial inclusion; and
● Innovative merchant payment solutions for micro, small and medium-sized enterprises.
Note that the application window for the first cohort of the regulatory sandbox ended on March 14 2023. At the time of writing this article, there was no indication from BoG on when the application window for the second cohort would be opened. Unofficial inquiries, however, suggest that applications for the second cohort will be opened some time in 2024.
An applicant is required to complete and submit an online application to BoG and must include:
● Information about the nature of the innovative product, service or business model;
● The applicant’s incorporation documents;
● Details of the applicant’s governance and ownership structure;
● Information on consumer benefits and safeguards;
● Information on the applicant ’ s readiness to test; and
● An exit plan.
The application will be reviewed for completeness and assessed to verify if it meets the requirements and eligibility criteria of the regulatory sandbox after which eligible applicants will be engaged in discussions regarding the testing of the innovative products. Participants will be charged no application fees.
Following these discussions, an eligible applicant will be issued with a letter of approval from BoG and admitted into the regulatory sandbox to commence testing the product. The testing will be monitored and evaluated periodically by the technical team. At the end of the testing period, applicants must submit the final testing report and exit the regulatory sandbox.
The letter of approval issued to successful applicants will among others, confirm the applicant’s entry into the regulatory sandbox; confirm the duration of time for participation in the regulatory sandbox; summarise the innovative product, service or business model permitted to be tested; reference any sandbox tools to be deployed; and set out the customer safeguards to be enforced.
Participants will typically be admitted into the regulatory sandbox for a duration of six months. Participants may, subject to BoG ’ s satisfaction, request an extension of the testing period of up to three months.
AN ELIGIBLE APPLICANT WILL BE ISSUED WITH A LETTER OF APPROVAL AND ADMITTED INTO THE REGULATORY SANDBOX