SECP REGULATORY SANDBOX GUIDELINES, 2019
SECP issued Regulatory Sandbox Guidelines 2019, afterwards referred as “Guidelines”, is a tailored regulatory environment for promoting innovation and are applicable to new products, services or business models which have not been addressed under existing laws and regulations or existing regulations do not fully address the solutions. Therefore, in order to facilitate the new / innovative business ideas for the test run determining viability on full-scale launch and to ascertain the compatibility with existing laws said Guidelines are formulated and being implemented in Pakistan.
Timeline to operate under Guidelines will be Six (6) Months and upon completion of Six (6) Months, innovators are required to submit completion report, for analysis of the SECP for determination of the future course of action with respect to the followings: –
1. Facilitating the participant in scaling up its solution in a compliant manner to a larger market in case of success or amicable wind up of its proceedings in case of failure, as the case may be.
2. Decision with regards to formulation of regulatory framework for promotion of the innovative solution, or amendment to the existing regulatory framework for facilitating innovation.
3. Prohibit completely or defer the deployment of the solution to a wider scale if the Commission is not satisfied with the results of the testing or if the product or service has significantly diverged from its original objectives and has perceived negative consequences to the consumer or the market.
The Specific potential business categories, which may fall under the scope of these guidelines are as follows: –
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 Process to apply for adopting Sandbox and Parameters to operate in are as follows: –
SECP will launch “Sandbox” adopting cohort approach i.e. an experimentation cycle will be evaluated and finalized before the commencement of next experimentation cycle. However, it will be prerogative of the SECP to start or not to start the next cohort or experimentation cycle. The cohort i.e. end-to-end-process will comprise of following stages: –
Call for applications
Following persons could be the potential innovators and are eligible to apply:
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.
Applications from potential innovators
An applicant / innovator desiring to promote or implement innovation in financial services shall make an application in the prescribed form with information and documents and Applicant shall also submit a projected plan with clear strategy for exiting the Regulatory Sandbox.
Preliminary screening of applications
SECP shall, within 30 days from the date of application, conduct preliminary screening of the applications using following parameters: –
a. Genuineness of innovation
b. Financial Inclusion
c. Consumer Benefit
d. Readiness for testing
e. Exit plan
Review and Selection
After the initial screening, the Commission shall meticulously review and evaluate the applications within forty-five (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 approved participant will be allowed to operate in the sandbox environment for the period of six months, under the monitoring of the Commission.
The participant will provide reports to the Commission with contents, format and frequency as agreed mutually between the participant and the Commission prior to the commencement of testing stage.
At the end of the testing period, the participant shall submit a completion report to Commission.
Suspension or Revocation of Approval
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: –
SECP can temporarily suspend the approval until the matter in question has been fully clarified.
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.
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