Note to FSPs and Start-Ups as Bank of Ghana pilots Regulatory Sandbox

What is a regulatory sandbox?

The regulatory sandbox is a supportive policy environment enabling financial service providers to test innovative products, services and business models in a controlled regulatory environment. It acts as a safe space for start-ups and businesses since regulators usually relax specific legal and regulatory requirements to enable Financial Technology ("FinTech") players to experiment with innovative financial products or services.

Objective of the Regulatory Sandbox

The objective of the Regulatory Sandbox is to among others, “enable small scale, live testing of innovative financial products, services and business models by eligible financial service providers and start-ups in a controlled environment under the supervision of BoG.” This means that innovators are permitted to test new ideas without being subjected to the full set of regulatory requirements applicable outside the Regulatory Sandbox. The Regulatory Sandbox will promote a progressive financial service industry without compromising financial stability.

What BoG’s Regulatory Sandbox is not

The Regulatory Sandbox is neither a permanent licence to operate nor a free pass to operate without BoG’s oversight or supervision.

Who can participate in the Regulatory Sandbox?

BoG-licensed banks and Specialised Deposit-Taking Institutions ("SDIs") such as Financial Holding Companies, Savings and Loans companies, Microfinance companies Payment Service Providers and Dedicated Electronic Money Issuers are eligible to apply to participate in the Regulatory Sandbox. Banks and SDIs who wish to participate in the Regulatory Sandbox and who seek to introduce products that are derived from the permissible activities listed under the Banks and Specialised Deposit-Taking Institutions Act, 2016, require BoG’s prior written approval.

Also, unlicensed FinTech Start-Ups (either solitary or in partnerships with other licensed entities) are eligible to apply to participate in the Regulatory Sandbox. Foreign FinTechs are not permitted to participate in the Regulatory Sandbox, however, a foreign company which incorporates a subsidiary in Ghana and satisfies the 30% Ghanaian equity participation requirement as well as all other legal requirements, may apply to participate in the Regulatory Sandbox.

Innovations the Regulatory Sandbox admits

In considering the applications to participate in the Regulatory Sandbox, BoG has indicated that preference will be given to products and services leveraging on the following:

• Blockchain technology,
• Remittance products,
• Crowdfunding products and services,
• Electronic know your customer platforms,
• Regulatory technology,
• Supervisory technology,
• Digital banking, products and services targeting women's financial inclusion and
• Innovative merchant payment solutions for micro, small and medium-sized enterprises

Note that the application window for the 1^st cohort of the Regulatory Sandbox ended on 14 March 2023. At the time of publishing this article, there was no indication from BoG on when the application window for the 2^nd cohort would be opened. Unofficial enquiries, however, suggest that applications for the 2^nd cohort will be opened sometime in 2024.

Application Process

An applicant is required to complete and submit an online application to BoG via this link and must include:

• Information about the nature of the innovative product, service or business model;
• The applicant’s incorporation documents;
• Details of the applicant’s governance and ownership structure;
• Information on consumer benefits and safeguards;
• Information on the applicant’s readiness to test; and
• An exit plan.

The application will be reviewed for completeness and assessed to verify if it meets the requirements and eligibility criteria of the Regulatory Sandbox after which eligible applicants will be engaged in discussions regarding the testing of the innovative products. Participants will be charged no application fees.

Following these discussions, an eligible applicant will be issued with a Letter of Approval from BoG and admitted into the Regulatory Sandbox to commence testing the product. The testing will be monitored and evaluated periodically by the technical team. At the end of the testing period, applicants must submit the final testing report and exit the Regulatory Sandbox. The Letter of Approval issued to successful applicants will among others, confirm the applicant’s entry into the Regulatory Sandbox; confirm the duration of time for participation in the Regulatory Sandbox; summarise the innovative product, service or business model permitted to be tested; reference any sandbox tools to be deployed; and set out the customer safeguards to be enforced.

Participants will typically be admitted into the Regulatory Sandbox for a duration of six months. Participants may, subject to BoG’s satisfaction, request for an extension of the testing period of up to 3 months.