The Central Bank of Iran Wednesday launched its regulatory sandbox to address regulatory challenges faced by the bank and financial startups.
Speaking at the unveiling ceremony at the CBI head office in Tehran, Ali Salehabadi, the governor, expressed optimism about the positive effect of the measure on finding 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 allow us to ensure that functions are compatible with regulations," IBENA quoted him as saying.
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.
In Nov 2018, the government instructed the CBI to create the regulatory sandbox to help the expansion of fintechs.
A key 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 senior banker referred to SupTech and RegTech as two technological fields aimed at enhancing central banks and commercial banks relations. "New technologies have the potential to help the CBI accelerate implementation of reforms in the banking system."
Regulatory Technology (RegTech) is an innovation that improves the procedure of regulatory prerequisites. Suptech is defined as the use of innovative technology by supervisory agencies to augment their oversight.
Mehran Mahramian, the CBI deputy governor for innovative technologies, referred to the slow pace of regulatory processes that often imperil the efforts of regulatory bodies in keeping pace with technological advancement.
"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 regulatory sandbox is useful for innovators, Mahramian said, noting that startups will benefit from the supervisory support of the CBI while their business plans will be thoroughly analyzed and potential risks will be 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.
The Security and Exchange Organization, the capital market regulator, last month unveiled a regulatory sandbox to facilitate development of third-party platforms.
