The Regulatory Framework Governing The CBN Regulatory Sandbox in Nigeria

As a result of increasing Consumer demand for more advanced payment solutions from transfers to remittances and investments, the Central Bank of Nigeria (CBN) came up with a system to develop and test-drive innovations in terms of Financial Technology service and product offerings under a controlled and monitored framework known as the CBN Regulatory Sandbox.

This sandbox is closely regulated by the CBN Framework For Regular Sandbox Operations 2021.

This then gives the CBN the Regulatory weight to give directions on the establishment, rules and operation of a Regulatory Sandbox specially for the Nigerian Payments system for the purposes of :-

– Encouraging by sector participants the development of effective healthy business competition through the use of new technologies.

– Ensuring increased levels of financial inclusion.

– Improving greatly the level of public consumer trust in the country’s financial sector.

This is what will focus the focus of this article which will be taking a closer look at:-

– The aims of the CBN Regulatory Sandbox.

– Eligibility criteria for entry into the Regulatory Sandbox.

– Some of the most important provisions of the CBN Framework for the Operation of the Regulatory Sandbox.

What are the objectives of the CBN Regulatory Sandbox?

The objectives of the CBN Regulatory Sandbox are :-

– To provide a forum for productive engagement and synergy between Fintech firms, especially in the payment solutions subsector.

– To encourage healthy business competition in the Fintech sector.

– To develop more improved standards of consumer protection in the Fintech sector.

Who are the participants in the CBN Regulatory Sandbox?

– The Central Bank of Nigeria.

– CBN-licensed businesses.

– Techpreneurs offering Financial products of an unlicensed nature based on novel technologies.

– Technology companies.

– Telecommunications companies seeking to delve into revolutionary Fintech service offerings.

What are the criteria for eligibility into the Regulatory Sandbox?

The following criteria must be satisfied to achieve eligibility into the CBN Regulatory Sandbox:-

– The Fintech solution or service package must be convincingly shown to offer clear potentials to improve accessibility, efficiency, security and quality in financial service delivery.

– The product must be shown to be capable of providing profitable entry and business benefit offerings on a macro-economic scale.

– The product must be potentially capable of improving efficiency in financial risk management

– The product must be shown to be deliverable within a limited transaction in terms of value and volume.

– The Sandbox applicants must show via assessments the utility or commercial value of the service offering along with a proper identification of the risks involved in using the service.

– A well laid out business plan showing a successful deployment of the service offering after finally leaving the Sandbox.

– A proof of the resources needed to carry out sandbox testing and risk prevention and control arising from the offering and use of the Fintech product.

What are the documentary requirements for entry into the Regulatory Sandbox?

Applications for entry into the CBN Regulatory Sandbox are to be accompanied by :-

– A Board Resolution of the applicant company where applicable.

– A copy of the company’s certificate of incorporation issued by the Corporate Affairs Commission (CAC).

– A copy of the company’s profile and contact information.

– A copy of the applicant company’s MEMART Memorandum Articles of Association as well as its Shareholding structure.

– The company organogram.

– The company’s project plan and business proposal.

– The company’s AML/ CFT Compliance policy

– The objective to be achieved by Sandbox trials of the Fintech product.

– Intellectual Property certificate in the form of Patent or Trademark certificates where applicable.

Does being in the Regulatory Sandbox come with operational requirements?

Yes it does. These operational requirements are :-

– Filing requirements :- Participant company information,financial state of affairs of the company, technical and business expertise among other requirements.

– Reporting requirements :- This involves proper maintenance of records during the Sandbox membership time frame for a 5-year maximum period as well as the sending of regular product test progress results to the CBN.

– Conditions for membership tenure extension and exit from the Sandbox :- Which for Sandbox membership extension comes with the compulsory requirement of a written application to the CBN stating the additional amount of time requested.

For exiting the Sandbox, a written application will also be required based on the satisfaction of any Regulatory obligations including consumer issues arising from Sandbox operations.

Evaluation & review of Sandbox membership approvals:- Sandbox memberships can be evaluated and reviewed at any time before the conclusion of testing periods in the cases of –

a). Liquidation of the member company.

b). Violations of any law affecting the member company’s business reputation.

c). A failure to carry out testing safeguards recommended under the CBN Sandbox Framework.

d). The acquisition of Sandbox membership on the basis of false information or information with suppressed facts being submitted in a Sandbox membership application.

e). Data security breaches.

f). Public policy based on consumer safety considerations.

What is the provision of the CBN Sandbox Framework on the issue of confidentiality? 

Under the Framework, Sandbox participants can decide to exchange business and technical ideas, but participants are required to treat such information as confidential whether it was shared orally, verbally or in writing.

Such confidential information constituting the intellectual property and trade secrets of the disclosing party if in written or documented form is to be returned, deleted or destroyed upon the request of a disclosing party.

This provision however does not apply to business or technical  information already publicly available or developed without using input from the information shared or disclosed within the Sandbox.