On September 5, 2022, the BSP issued BSP Circular No. 1153, series of 2022, entitled “Regulatory Sandbox Framework” (Sandbox Circular) which institutionalizes the Test & Learn (T&L) approach that the BSP has been implementing for BSFIs, third-party service providers of BSFIs, and new players seeking to offer financial products and services using new technology and innovations.
All BSFIs, BSFI Third-party service providers, and new players interested in entering the Philippine banking industry that intend to offer or use an emerging or new technology to deliver financial products or services pertaining to activities that could fall under the regulatory coverage of the BSP are encouraged to participate in the BSP Regulatory Sandbox.
- Regulatory Sandbox. “Regulatory Sandbox” is defined as a controlled, time-bound, live testing environment, which may feature regulatory waivers at the regulator’s discretion. The testing environment may involve limits of parameters within which Participants must operate. In the Regulatory Sandbox, Participants are allowed to explore the potential of their new technologies and products without posing excessive financial risks to the consumers.
- Eligibility Criteria. The Sandbox Circular provides eligibility criteria both for the prospect financial solution and the applicant. The financial solution must use new or emerging technology or utilize an existing technology in an innovative manner or ridges a market gap in the delivery of financial products/services.
- Conditions. The Sandbox Circular provides for conditions that the applicant must comply with at all times for the duration of the testing, such as oversight framework requirements, strategic plan requirements, and AMLA and EPFS compliance, among others.
- Four-stages process under the Regulatory Sandbox Framework. Under the Sandbox Circular, all applicants must undergo four stages (i.e., application, evaluation, testing, and exit) to be considered a Participant in the Regulatory Sandbox and eventually be issued an Authority to Operate.
With the introduction of the Regulatory Sandbox Framework, the BSP aims to incentivize both existing and new players to venture into innovative solutions while minimizing the risks to both the participants and the consumers. However, for new players, this invitation to innovate must be considered side by side with the BSP’s moratorium on licensing of VASPs, which continues to be in effect. Consequently, a potential VASP, even after successful testing in the regulatory sandbox, will have to await the lifting of the moratorium before it can obtain a license to offer its product to the Philippine market.