The National Informatics Corporation (NIC), Central Bank of Iran's technology arm, says the recently launched regulatory sandbox should help boost investment in fintech startups.
"By entering the CBI sandbox, financial innovators are 50% more likely to attract investments…Moreover, acceptance in the regulatory sandbox is expected to raise investments' value by 15%," Mahmoud Karimi, head of NIC department for research and strategic studies, was quoted as saying by the NIC public relations department.
The CBI launched the regulatory sandbox to address challenges faced by the bank and financial startups in June.
A regulatory sandbox is a controlled environment supervised by a public authority in which startups and incumbents are allowed to test innovative products and services and face less risk of penalty for non-compliance with rules in exchange for certain safeguards – such as accepting a limited number of clients or intermediating limited transactions.
According to the NIC, several projects were submitted to the sandbox since the first call for participants in June. Ten projects me primary eligibility requirements. Following a series of technical assessments, two projects managed to enter the sandbox – a blockchain-based payment solution and a lendtech project.
LendTech or lending technology is a digital means to provide loans and banking services to people securely online. Banks and other financial companies digitally provide customers a platform to manage loans and its processes through their platforms.
The central bank had called on fintechs concentrating on electronic payments and banking solutions in June to apply.
In the second call, the CBI has invited developers of financial solutions, specifically those related to LendTech, remittance and SupTech.
Suptech is defined as the use of innovative technology by supervisory agencies to augment their oversight.
In Nov 2018, the government instructed the CBI to create the regulatory sandbox to help promote fintechs.
Key Goal
The main objective of the sandbox is to foster innovation by facilitating access of fintechs to regulatory support in the early stages of their inception. As fintechs offer new products in high regulatory uncertainty, they face challenges of asymmetric information and often struggle to raise capital to develop products and grow.
The central bank has expressed optimism about measures to find innovative solutions in the key finance and banking sectors.
"As the financial market regulator, the CBI is obliged to pave the way for innovation. The regulatory sandbox will assist both the central bank and fintechs in improving the quality of services and ensure that functions are compatible with regulations," CBI Governor Ali Salehabadi was quoted as saying during the unveiling ceremony of the regulatory sandbox.
Mehran Mahramian, the CBI deputy for innovative technologies, referred to the slow pace of regulatory processes that often imperil the efforts of regulatory bodies in keeping pace with high-tech.
"Sandbox is a suitable solution for addressing the problem...it allows startups to launch with a limited number of permits. We can [then] set the relevant regulations and decide how startups should move forward."
Using a regulatory sandbox is in the interest of innovators, Mahramian said, noting that startups will benefit from the supervisory support of the CBI while their business plans will be analyzed and potential risks addressed before they enter the market.
The National Informatics Corporation, the CBI office for developing financial solutions, was tasked to develop the sandbox,
The number of fintechs has rapidly increased in Iran in recent years and are required to build partnerships with financial institutions.
Available data suggest that lenders and innovators have managed to get along relatively well. According to the CBI, 26 fintech hubs are now active in Iran.
