First cohort of Regulatory Sandbox: SECP permits six solutions for testing

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP), in its first cohort of Regulatory Sandbox, permitted six solutions for testing in a controlled environment subject to terms and condition.

The SECP officials told media here on Friday at the SECP Headquarters that the innovative business solutions, selected for live testing and experimentation in “First Cohort” of “the SECP’s Regulatory Sandbox, have successfully passed evaluation on the basis of mutually agreed test scenarios and expected outcomes.

The tests were focused on achieving clarity whether such product/solution can operate in the existing regulatory frame work or amendment or an altogether new amended regulatory framework is required.

“Two business models were successful and as a result, amendments in regulatory frameworks are at final stages: FINJA Lending Services Limited – P2P Lending platform and First Digital General Takaful - dedicated digital takaful operator”, the SECP officials said. The SECP officials informed that the Regulatory Sandbox is a tailored environment where firms/startups can conduct live testing of their innovations/business models in a controlled environment for a limited period of time under the supervision of a regulator.

The regulatory framework is evolved as a result of testing and evaluation process in Regulatory Sandbox. The sandbox is being operated on a cohort approach basis to be announced by the SECP from time to time.

Till date, two cohorts have been announced. The selected participants tested solution for Digital Peer-to-Peer (P2P) Lending Platform, Mutual Fund Digital Distribution and Robo Advisory, Digital Equity Crowd funding Platform, Digital Insurance Brokerage and Digital General Takaful Provider. During the six months testing phase, the participants were in constant liaison with the SECP and shared impediments, whether regulatory or otherwise, to their testing.

The participant testing Digital Peer-to-Peer (P2P) Lending Platform received an encouraging response both from lenders and borrowers. SECP is in process of amending the NBFC Regulations to provide a comprehensive enabling framework for P2P Lending. Under the proposed framework, an existing licensed NBFC would be able to operate a P2P Lending Platform subject to the regulatory requirements and obtaining prior permission from the SECP.

Similarly, the tests also paved the way for a framework of Mutual Fund Digital Distribution and Robo Advisory. SECP issued guidelines encouraging use of FinTech for distribution and advisory purposes. Takeaways from testing also enabled SECP to develop Rules for micro and digital only insurer.

Post public consultation these Rules are currently in the final stages of approval. It is emphasized here that inclusion of a product/solution in the sandbox should not be construed to assume legitimacy for real life commercial operations without express written approvals from the SECP by entity or company.

Copyright Business Recorder, 2022