Three Firms Admitted to the CMA, Kenya Regulatory Sandbox

Wednesday, July 31, 2019 10:49AM / by Capital Market Authority, Kenya / Header ImageCredit: Kbc.co.ke

Following the approval of the RegulatorySandbox Policy Guidance Note (Regulatory Sandbox PGN) with effect from 26 March2019, the Capital Markets Authority (CMA) has been receiving applications fromfintech firms seeking to be admitted into the Regulatory Sandbox. As at July2019, three applicants have been admitted to live test innovative solutionswith the capacity to deepen and enhance the efficiency of capitalmarkets.

Innova Limited has been approved to testits cloud-based data analytics platform designed for use by Investors, FundManagers, 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-basedcrowd-funding platform through which investors can provide loan facilitiesstructured as loan notes (debentures) for Small and Medium Enterprises (SMEs).The approval restricts the testing period to 12 months. The third fintech firmadmitted has elected to remain anonymous during its three months test period,except to its closed group of test subjects, an option provided in theRegulatory Sandbox PGN.

CMA Chief Executive Mr. PaulMuthaura observed that Innova and Pezesha will be updating the Authority on themilestones achieved, challenges faced and mitigation measures implemented inline with the test plans submitted to the CMA during the application process.

‘The Regulatory Sandbox allows livetesting of innovations under a less onerous regulatory regime and is expectedto attract fintech companies and existing capital markets licensees to test theapplication of technology to financial services. The admission of the threefirms is an important milestone noting that the Authority had set itself atarget to admit five firms to the Regulatory Sandbox by 2023’, said Mr.Muthaura.

To enhance the Authority’s investorprotection mandate, Sandbox participants are required to comply with minimumregulatory requirements prescribed by the Regulatory Sandbox Policy GuidanceNote such as submission of test plans, which outline key test objectives,testing metrics, performance indicators, and safeguard and remedial measuresfor test clients. The PGN specifies that the Authority can revoke or suspend anapproval to participate in the Regulatory Sandbox at any time before the end ofthe test period and can take enforcement action against a participant in breachof the regulatory requirements.

Upon exit from the Sandbox,participants could be granted a license or approval to operate in Kenya subjectto compliance with existing legal and regulatory requirements. The Authoritymay in the alternative grant permission to operate in Kenya subject tocompliance with the terms of a letter of no objection. He observed, ‘wherethere is need for a broader legal or regulatory reform, we may adopt newregulations, guidelines or notices pursuant to Section 12 and 12A of the CapitalMarkets Act, based on insights gained from the Regulatory Sandbox test.’ Adenial of permission to operate in Kenya under prevailing legal and regulatoryrequirements may also be issued.

Mr. Muthaura noted that at minimum,Sandbox applicants need to be companies incorporated in Kenya, or existinglicensees of the Authority or other capital markets regulators. Fintech firmsare assessed for admission based on their intent to offer innovative products,solutions or services with the potential to deepen Kenya’s capital marketsfollowing successful exit from the Sandbox.

The Regulatory Sandbox serves tocontinuously improve CMA’s understanding of emerging technologies as well asthe risks and opportunities that the innovations portend for investors, financialinstitutions and the regulator. The insights from the tests allow for a moreevidence-based approach to regulation.

The Regulatory Sandbox is not anincubation center, physical or virtual space. It is not applicable for proposedproducts, services or business models that are already clearly addressed underexisting laws and regulations.