Regulatory sandbox helps boost fintech businesses

• There is still a lack of understanding about the sandbox
• Reflects global diversity of fintech ecosystem

IN LATE May this year, Bank Negara Malaysia (BNM) announced that four fintech companies had been approved as participants in its Financial Technology Regulatory Sandbox. The companies comprise two Malaysian startups, namely MoneyMatch Sdn Bhd and GetCover Sdn Bhd and two foreign-owned companies – GoBear Ltd and WorldRemit Ltd.

Last year, the central bank had created a unit called the Financial Technology Enabler Group (FTEG) to formulate and enhance regulatory policies to facilitate the adoption of technological innovations in the Malaysian financial services industry. Following the establishment of FTEG, BNM published the Financial Technology Regulatory Sandbox Framework, which sets out the rules and parameters for innovative solutions to be tested in the market.

Some salient points to note about the sandbox:

• Both financial institutions and fintech startups can apply independently as well as collaboratively into the sandbox. There is an added advantage for companies providing technical solutions to collaborate with partners who already have the licence to participate in the sandbox for the ability to test the solution straight in the market once approval is given;
• The sandbox is applicable to innovative fintech solutions that fall under the businesses within the purview of BNM. The application is open year-long with applicants informed of their eligibility status within 15 working days;
• Solutions would have undergone adequate and appropriate testing (beyond proof-of-concept) and due diligence to demonstrate the usefulness and functionality as well as the associated risks identified in order to be in the sandbox framework;
• Solutions have to be technologically innovative and/or possess strong value propositions to address problems for the benefit of consumers; and
• The sandbox allows regulators to learn from innovators and adapt to new and emerging risks emanating from the offering of new solutions. BNM is open to creating new regulation or amending existing regulations to allow innovative solution to be offered in the market under licensed regimes.

The FTEG website describes GoBear and GetCover as financial advisor and insurance aggregator platforms, while MoneyMatch and WorldRemit offer money services business (money exchange and remittance services).

According to the central bank’s announcement in late May, these four companies have been approved to commercially launch their services, within certain limits set by the central bank.

Digital News Asia (DNA) caught up with two of these companies, to gauge their experience being part of the regulatory sandbox.

MoneyMatch chief executive officer Adrian Yap (pic, above) says they had no problems understanding the framework or what was required of them, from the very beginning.

He describes the opportunity of being in the sandbox as ‘amazing’ and contributing to the development of MoneyMatch while lending a lot of legitimacy to the business itself.

“It helps with the customer adoption rate…which customer would want to hand over money to a company that’s not licensed or recognised by the regulator?” he posed. “A lot of doors have actually opened in the remittance and money exchange space as well. The bigger players in the market have also started wanting to work with us. So there are definitely benefits that have come from being in the sandbox.”

There have been surprises as well, key of which is the lack of understanding about the sandbox itself. “For me, the biggest surprise has been how few people understand what an opportunity this actually is. It’s very hard for a regulator to allow for technological innovation in this space, to basically call for innovative ideas and test them and I think a lot of people haven’t appreciated this. Hopefully more people will start to recognise the importance of the sandbox, going forward,” he says.

Yap believes that there’s a lot of ignorance still among the public about what can and cannot be done in the sandbox. He points out that the information is all available on the central bank website and commends the central bank for being more than open with engagement. “But I just think that people refuse to educate themselves and begin the conversations,” he laments.

“It’s always going to be a tug-of-war; fintech guys want to do everything and want the approvals too. But from a regulator’s standpoint that is not possible, because what comes out can be money scams, etc. And I think that Bank Negara Malaysia via the sandbox has encouraged a lot of co-operation within the ecosystem and therefore it’s definitely benefitting all the parties in the sandbox right now,” he says. 

Next page: Guidance and flexibility are key