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Fintech Regulatory Sandbox Discussion Paper
1
Aznan Abdul Aziz
Chairman of the Financial Technology Enabler Group (FTEG)
Bank Negara Malaysia
Fintech and the regulatory spectrum
2
Too small
to care
Too large
to ignore
Too big
to fail
“Large” also includes “significant” and “interconnected”
The Sandbox explained
3
Build (almost)
anything you want
In a safe environment,
with clear boundaries
and safeguards
We may relax
some (but not all)
of our rules
Consequences of failure
can be contained
Our motivation for introducing the Sandbox
4
• Promote innovation
• Remove regulatory barriers or uncertainty
• Lower cost of testing new ideas
• Faster time to market
• Fine-tuning of products/solutions prior to launch
• Evaluate impact and monitor unintended consequences
• Reduce risk and contain the consequences of failure
• Review our regulations
Key features of the Sandbox
5
 3 key components of regulatory sandboxes:-
- Eligibility criteria : Filtering mechanism to ensure only deserving candidates
are processed and approved for sandbox deployment
- Safeguards : To reduce risk and contain the consequences of failure. To be
proposed by the applicant, modified or enhanced as appropriate by the Bank
- Regulatory flexibilities
 Regulatory sandboxes cannot be used to circumvent existing regulations, and
are therefore not suitable for activities/solutions that are already allowed under
existing regulations.
 In addition to regulatory sandboxes, the Bank will also provide ‘informal steer’ to
guide individual FIs/Fintech companies.
Eligibility Criteria
6
 The solution is genuinely innovative
 The deployment of the solution is:
 Not allowed due to any prohibition under existing laws or regulations; or
 Either wholly or partly incompatible with applicable regulatory requirements
 The solution has clear potential to:
 Contributes to development of Malaysia’s financial sector;
 Brings enhancement to financial institution’s efficiency or risk management
and controls; or
 Significantly benefits the Malaysian economy and/or consumers
 Due diligence was conducted to verify the viability of the solution and the
associated risks
 Applicant has the resources to mitigate and control potential risks and losses
arising from the offering of the solution
 The solution is planned to be offered commercially in Malaysia after the
Sandbox
Other requirements
7
Caveat: In addition to the safeguards proposed or offered by the applicant, the Bank may impose
additional safeguards as the Bank sees fit
Examples of Safeguards
 Adequate disclosure of the potential risks to participating customers and confirmation of their
understanding of the attendant risks
 Limiting individual and/or aggregate value or frequency of transactions
 Restricting participation to targeted customers and duration of the testing period
 Availability of consumer redress mechanism and adequate resources to undertake the testing and
contain the consequences of failure
Caveat: Additional conditions may be imposed by the Bank on the participants taking into account
risks peculiar to the respective test
Minimum Standards
 Maintain adequate oversight and control arrangements
 Maintain appropriate risk management systems and processes
 Have in place appropriate customer protection safeguards
 Have adequate financial capability
8
Questions and feedback welcomed
… except on P2P lending :)

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MDEC Fintech Conference - Facilitating Innovation Through The Fintech Regulatory Sandbox, Bank Negara

  • 1. Fintech Regulatory Sandbox Discussion Paper 1 Aznan Abdul Aziz Chairman of the Financial Technology Enabler Group (FTEG) Bank Negara Malaysia
  • 2. Fintech and the regulatory spectrum 2 Too small to care Too large to ignore Too big to fail “Large” also includes “significant” and “interconnected”
  • 3. The Sandbox explained 3 Build (almost) anything you want In a safe environment, with clear boundaries and safeguards We may relax some (but not all) of our rules Consequences of failure can be contained
  • 4. Our motivation for introducing the Sandbox 4 • Promote innovation • Remove regulatory barriers or uncertainty • Lower cost of testing new ideas • Faster time to market • Fine-tuning of products/solutions prior to launch • Evaluate impact and monitor unintended consequences • Reduce risk and contain the consequences of failure • Review our regulations
  • 5. Key features of the Sandbox 5  3 key components of regulatory sandboxes:- - Eligibility criteria : Filtering mechanism to ensure only deserving candidates are processed and approved for sandbox deployment - Safeguards : To reduce risk and contain the consequences of failure. To be proposed by the applicant, modified or enhanced as appropriate by the Bank - Regulatory flexibilities  Regulatory sandboxes cannot be used to circumvent existing regulations, and are therefore not suitable for activities/solutions that are already allowed under existing regulations.  In addition to regulatory sandboxes, the Bank will also provide ‘informal steer’ to guide individual FIs/Fintech companies.
  • 6. Eligibility Criteria 6  The solution is genuinely innovative  The deployment of the solution is:  Not allowed due to any prohibition under existing laws or regulations; or  Either wholly or partly incompatible with applicable regulatory requirements  The solution has clear potential to:  Contributes to development of Malaysia’s financial sector;  Brings enhancement to financial institution’s efficiency or risk management and controls; or  Significantly benefits the Malaysian economy and/or consumers  Due diligence was conducted to verify the viability of the solution and the associated risks  Applicant has the resources to mitigate and control potential risks and losses arising from the offering of the solution  The solution is planned to be offered commercially in Malaysia after the Sandbox
  • 7. Other requirements 7 Caveat: In addition to the safeguards proposed or offered by the applicant, the Bank may impose additional safeguards as the Bank sees fit Examples of Safeguards  Adequate disclosure of the potential risks to participating customers and confirmation of their understanding of the attendant risks  Limiting individual and/or aggregate value or frequency of transactions  Restricting participation to targeted customers and duration of the testing period  Availability of consumer redress mechanism and adequate resources to undertake the testing and contain the consequences of failure Caveat: Additional conditions may be imposed by the Bank on the participants taking into account risks peculiar to the respective test Minimum Standards  Maintain adequate oversight and control arrangements  Maintain appropriate risk management systems and processes  Have in place appropriate customer protection safeguards  Have adequate financial capability
  • 8. 8 Questions and feedback welcomed … except on P2P lending :)