Karachi, December 5, 2023 – In a strategic move to foster innovation in the digital financial services (DFS) sector, the State Bank of Pakistan (SBP) unveiled a draft regulatory sandbox on Tuesday, encouraging stakeholders to provide feedback before the finalization of the regulatory and technical sandboxes.
Objective of SBP’s Regulatory and Technical Sandbox
Aligned with international best practices, the SBP aims to encourage innovation in digital financial services through the introduction of guidelines for both Regulatory and Technical Sandboxes, particularly focusing on the recently launched Real-Time Interbank Fund Transfer System (RAAST).
The Regulatory Sandbox guidelines empower the SBP to:
a) Promote digitalization and financial inclusion through disruptive technologies, customer-centric products, and innovative business models.
b) Identify and mitigate risks associated with unregulated financial products and services.
c) Create a supportive environment for Fintech entities and incumbents introducing new financial products and services.
d) Enhance regulatory clarity and consistency for DFS.
e) Support evidence-based regulatory reforms.
The Technical Sandbox for RAAST aims to ensure seamless integration of innovations into the broader financial market infrastructure by:
a) Allowing sandbox participants to test RAAST-related products and services in a controlled environment, fostering innovation.
b) Facilitating the testing and validation of new payment methods, protocols, and systems within the RAAST ecosystem.
c) Encouraging collaboration among stakeholders in the financial industry.
Scope of the Sandboxes
The SBP Sandboxes are open to entities proposing solutions involving products or technologies not currently covered by SBP policies, not already available in the market, or facing regulatory restrictions. Entities promoting DFS and financial inclusion are also welcome.
However, participation is not allowed for propositions lacking material value, unclear objectives, or associated with individuals convicted of financial crimes. Bankruptcy or insolvency, products or services prohibited by law, and those in breach of international obligations are also excluded.
Global Context and Regulatory Sandboxes
Acknowledging global developments in financial technology (Fintech), the SBP recognizes the potential contributions of innovative business models to public policy agendas. Regulatory Sandboxes, adopted by regulators worldwide, provide a controlled environment for testing new technologies, products, and services, allowing entities temporary relaxation from existing regulatory obligations during the testing phase.
Technical Sandboxes, on the other hand, offer a dynamic testing environment for innovators, Fintech startups, and financial institutions to experiment with and refine new payment methods and services.
The SBP’s initiative signifies a commitment to balance innovation with regulatory oversight, reflecting a growing trend among regulators to adapt to the evolving landscape of digital finance while safeguarding consumer protection and financial stability. Stakeholders are invited to provide comments on the draft sandboxes, marking a significant step toward shaping the future of digital financial services in Pakistan.
