Business And Markets

Regulatory Sandbox on CBI Agenda

Regulatory Sandbox on CBI Agenda
Regulatory Sandbox on CBI Agenda

Launching a regulatory sandbox is on the agenda of the Central Bank of Iran for promoting financial technology, the CBI deputy governor for innovative technologies said.
"Creating a regulatory sandbox is a priority for the CBI as it would help innovators detect possible flaws in their platforms and at the same time help ease the process of licensing," Mehran Moharramian said at a "Innovative Finance for Technological Progress" webinar on Monday.
He did not provide details.
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 the regulation in exchange for certain safeguards – such as accepting a limited number of clients or intermediating limited transactions.
A key objective of the sandbox is to foster innovation by facilitating access of fintech to financing at the early stages of development. As fintechs offer new products in high regulatory uncertainty, they face serious challenges of asymmetric information and often struggle to raise capital to develop products and grow.
The Security and Exchange Organization, the regulatory body of Iran's capital market, last month unveiled a regulatory sandbox to help ease the development of third-party platforms.
Back in November 2018, the government required the CBI to establish a regulatory sandbox in line with plans for fostering fintech startups.
The CBI announced earlier that it would unveil the regulatory sandbox in spring 2021. Delay in creating platforms for the implementation of the new check law is seen as the reason behind the delay in launching the sandbox.
The number of fintech startups has rapidly increased in Iran in recent years.

Delegating Responsibility

The CBI in October 2017 published a document on rules related to the work of fintechs. It made clear that it will neither establish a new institution for supervising fintechs nor issue licenses for the operation of financial service providers. Instead, it said it would “delegate the responsibility to authorized financial institutions.”
In the new framework the CBI defined roles and regulatory processes without getting directly involved in the process of authorizing innovative financial services. Fintechs are required to start a partnership with authorized financial institutions.
Numbers suggest that lenders and innovators have managed to get along relatively well. According to Moharramian, 26 fintech hubs are currently active in Iran.
"Almost 87% of Iranian banks and credit institutions have established their own innovation centers," he said. "This has helped banks and innovators to reach mutual understanding about [improving] the financial market and the fintech ecosystem."
Undoubtedly, a regulatory sandbox is a must for promoting technological development within the financial industry. Given the high potential and robustness of the fintech sector, the CBI needs to stop wasting time and unveil the long-awaited platform, experts say.



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