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Regulatory Sandboxes to Spurt Growth of Fintechs

Financial technologies (also referred to as Fintechs) are increasing in growth and popularity in the global financial sectors. This is doubtlessly revolutionary and could change the way we hold cash and transact within and across borders. Major banks and other financial institutions such as JP Chase, Wallstreet banks and banks in African countries such as Kenya Commercial Bank and Equity Bank are diligently developing strong fintech environments to change the financial transactions ecosystem.  These financial institutions are spending millions (in their currencies) in research and development to create new software to diversify and advance their financial transactions, customer service and other aspects of their operations. In 2017 and 2018 the level of investments in the Financial technologies rose sharply as banks and other financials realized the importance of fintechs in order to maintain market relevance in such a fast-changing environment.

Regulatory bodies have been quiet in many jurisdictions for long. There are various approaches to financial regulations that I may not address in this article, some include a wait-and-see approach where the regulators do nothing but wait and see how the market regulates itself. China seems to use the wait-and-see approach. Other countries such as the United States, the United Kingdom, Singapore, Bahrain, and Kenya have chosen to go the Sandbox way. A sandbox is a test environment where innovations are allowed to conduct a live market test of their products with real customers to evaluate whether they meet their expectations and capable of operating in a regulated environment. Kenya’s Capital Markets Authority (CMA) has recently conducted a public review of its new Draft Regulatory Sandbox Guidance Policy Notes engaging the various stakeholders including advocates and intermediaries.

Sandboxes will really spurt growth of the fintechs because it will make it possible for innovators to release their fintech products into the live market on a test basis. The sandboxes tend to provide less stringent regulations and requirements that can easen the regulatory environment. In 2019 we expect to see more regulators around the world and across industries develop their own sandboxes to enhance innovation.

Beatrice Wambugu (Betty)

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