CMA REGULATORY SANDBOX: READY TO PLAY?
On 28 March 2019, the Capital Markets Authority (CMA) issued the Regulatory Sandbox Policy Guidance Note. This sets the stage for CMA to begin accepting applications from innovators to be admitted to the Regulatory Sandbox (the Sandbox).
The Sandbox is a platform that will allow developers of innovative products and services that are relevant to Kenya’s capital markets to conduct limited-scale, live tests of offerings in a tailored regulatory environment.
The Policy Guidance Note does not define the term ‘innovative products, solutions or services’ save to say that these are business models and emerging technologies that ‘have the potential to deepen or broaden capital markets in Kenya’. Our view is that this generalised description is deliberate on the part of CMA, to enable it assess proposals on a case-by-case basis.
CMA has indicated that discussions are underway towards establishing a multi-sector regulatory sandbox to address developments such as cryptocurrency and evolving payment technologies, which are related to but not the sole province of capital markets.
In jurisdictions such as Singapore, there are clearly stipulated financial incentives such as tax exemptions for fintech companies participating in a regulatory sandbox. This is not the case in Kenya and should be considered as incentives enhance interest and encourage users.
Why participate in the Sandbox?
For innovators, the benefit would be the ability to deploy their products or services, which would provide valuable insight into the market’s reception of the offerings. For their part, CMA will have the opportunity to interrogate the product or service better, thereby informing the crafting of pragmatic and facilitative regulations that protect the interests of investors.
Who may apply to participate?
The applicants must be committed to issuing the innovative product, solution or service in Kenya after successful exit from the Sandbox. They must be either a company incorporated in Kenya, or a foreign company that is licensed by a securities market regulator in its jurisdiction.
CMA will only accept ideas that are developed to the level of operational testing. They are however working with ‘incubators’ who can assist innovators to develop their ideas to a level at which they would be eligible for the Sandbox.
Putting it into perspective
Although Kenya is a regional leader in financial innovation, the strides that have been made are mainly in mobile money and payments technology. The capital markets products available in Kenya today are few and traditional. Emerging technology provides the opportunity to introduce products that break the mould, or to offer the traditional products and services in innovative ways. The Sandbox is an avenue for such advancements to reach the Kenyan market.
Further, some of our financial services laws and regulations are not conducive for the introduction of the less conventional products and services that innovators are developing. The Sandbox will deepen Kenya’s capital markets and enhance the formulation of regulations that mirror market needs, promote financial inclusion and improve consumer and investor confidence.