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Securities and Exchange Commission of Pakistan (SECP) Wednesday took a major step to facilitate corporate sector by introducing 'Regulatory Sandbox Environment' for companies to conduct limited scale live tests of new products, services or business models in a controlled environment to bring an innovative approach to the market.

In this regard, the SECP has issued Regulatory Sandbox Guidelines, 2019 here on Wednesday.

According to the SECP, Regulatory Sandbox is a tailored regulatory environment for conducting limited scale, live tests of innovative products, services, processes, and/ or business models in a controlled environment for a limited period of time so as to assess their viability to be launched on full-scale, and to determine the compatible and enabling regulatory environment that will be conducive for the innovative solutions.

The Regulatory Sandbox is primarily applicable for new products, services or business models which have not been addressed under existing laws and regulations; or these new ideas bring an innovative approach to the market and there exists considerable uncertainty in terms of unexpected adverse outcomes or existing regulatory framework does not fully address the solutions proposed to be experimented through the regulatory sandbox.

The Commission may nonetheless consider any credible cases evidencing that a proposed model is not envisioned in the existing framework. In all such cases, the Commission's decision shall be final as to whether such threshold has been met, SECP said.

The applicants can apply for inclusion in a cohort which is a complete lifecycle of the regulatory sandbox implementation in which a set of applicants enter in order to test their innovation in a specified time.

The applications for experimentation through the regulatory sandbox can be sent by the following: (a) All companies registered with the Commission including, but not limited to, the licensed entities (means entities which have obtained registration or license from the SECP under any of the administered law of SECP), financial technology (FinTech) companies, technology providers, and any other companies; (b) Presently unregistered startups with the intent to get registered in case of successful testing in order to scale out to a larger market; (c) Internationally recognized/ well-known companies or any other persons as deemed appropriate by the Commission.

The Regulatory Sandbox shall be operated in accordance with the cohort approach i.e. an experimentation cycle will be evaluated and finalized before the commencement of next experimentation cycle, SECP explained.

The proposed innovation should either introduce a new idea to the local market (ii) Introduce a new use case for an existing idea. The proposed innovation should promote equal opportunity to access financial services in Pakistan and should increase financial literacy.

The announcement for call of applications under the regulatory sandbox will be made by the Commission to start the cohort as and when deemed appropriate by the Commission, through whatever means considered appropriate. An applicant desiring to promote or implement innovation in financial services shall make an application to the Commission in the prescribed form with such information and documents as prescribed.

An applicant may apply to the Commission seeking permission for promoting or implementing innovation for the aforementioned objectives in any one or more of the following categories. However, the applicant can also request for testing into a new category altogether. The categories included: (i) Innovative product development and/ or distribution (ii) Alternate financial intermediation platform (For example, person to person lending etc.) (iii) Crowdfunding, (equity, debt, donation, rewards) (iv) Digital Assets (v) Innovative insurance underwriting (vi) Insurance policy servicing (vii) Alternate risk transfer mechanisms (viii) Financial/ robotic advisory (ix) Claims adjudication and payments (x) Artificial Intelligence (xi) Any other category as the Commission may deem fit.

The Commission shall, on receipt of an application, communicate to the applicant within 30 working days about results of preliminary screening. Incomplete applications and those lacking clarity and vision shall not proceed to the next step. The applications which clear the preliminary screening stage will enter the next stage of evaluation where these will be thoroughly scrutinized by the Commission.

After the initial screening, the Commission shall meticulously review and evaluate the applications within 45 working days and may ask for additional information from the applicant. The Commission shall issue a letter of approval (LoA) Sandbox to the successful applicants to participate in the Regulatory Sandbox. Once approval is granted, the Participant will be allowed to operate in accordance with these Guidelines for the period of up to six months.

The Commission will analyze the completion report submitted by the participant at the exit stage and will determine the future course of action, SECP said.

At any stage, where SECP has possible reasons to believe that the innovator has failed to adhere to the details agreed during the review and selection stage: (i) SECP can temporarily suspend the approval until the matter in question has been fully clarified. (ii) SECP can completely withdraw the approval with a public notice in case a serious discrepancy has been observed related to consumer detriment or any other serious matter, the SECP added.

Copyright Business Recorder, 2019