The Bank of Tanzania of Tanzania recently introduced regulations known as the Bank of Tanzania (Fintech Regulatory Sandbox) Regulations, 2023. Now, let’s break down what it is an what it is not.

What’s the Fintech Regulatory Sandbox?

This refers to a situation or a regulatory activity where innovative ideas for financial technology, or “fintech,” can be tested out in a controlled environment. Simply put– a space where new financial services, apps, or technologies can be experimented with under the watchful eye of the Bank of Tanzania of Tanzania as the main Regulator.

Who’s Involved?

These regulations apply to three main groups:

1. Licensed Financial Service Providers: Traditional banks or financial institutions.

2. Fintech Companies Collaborating with Licensed Providers: Tech companies working with traditional financial institutions.

3. Independent Fintech Companies: Those planning to offer solutions for financial services regulated by the Bank of Tanzania.

Understanding the Terminology:

The document uses some jargon, so let’s clarify a few terms:

• Regulatory Sandbox: A place where firms can test new financial products or technologies in a controlled setting.

• “Financial service provider” means an institution licensed, regulated and supervised by the Bank of Tanzania of Tanzania.

• “Fintech” means technological innovation to be utilized in the provision of financial services.

• Cohort: A group of innovators testing their ideas at the same time.

• Financial Solution: Any new financial product, service, app, or business model.

• Testing Environment: The real-world market where a new financial solution is tested before being fully compliant with all rules.

• Market: means environment in which a financial solution is deployed for use.

Why  a Sandbox?

The objective of these regulations is to enable innovation of fintech to be tested and deployed in a live environment within a specified parameters and timeframe so as to encourage innovation in fintech, protect consumers, define roles and responsibilities of the parties and actors within the sandbox , gather information to improve existing regulations by the Bank of Tanzania of Tanzania, and to help fintech innovators transition to a regulated environment.

How Does It Work?

The Bank of Tanzania of Tanzania’s Responsibilities;

The Bank of Tanzania of Tanzania is responsible for making sure the sandbox achieves its goals. They evaluate applications, monitor operations, and take action if needed. The Bank of Tanzania also protects intellectual property, ensuring that innovative ideas are secure.

Protection of intellectual property

According to these regulations the BOT only accept applications from applicants whose innovative financial products and services are duly verified and registered by the authority responsible for protection of intellectual property rights. Further for the purpose of  intellectual property, applicant shall not disclose the technical specifications of the innovation.

Getting into the Sandbox; Application process

Companies or person interested in trying out their ideas must apply to the Bank of Tanzania of Tanzania using prescribed forms. The applicant must submit financial solution risk profile indicating potential risks, causes, effects and control measures in place The application process involves demonstrating the uniqueness of the idea, showing resources to support testing, and having a plan for what happens after testing.

Where an application does not meet criteria set by these Regulations, the Bank of Tanzania shall reject the application provided that, in so doing, the Bank of Tanzania shall furnish to the applicant reasons.

Testing Period:

Once accepted, there’s a testing period of up to nine months. During this time, the participant must safeguard customers, handle complaints, and protect personal and financial data

The Bank of Tanzania may extend testing period where the innovation has tested positive and, it can be justified that extension of testing period is necessary to respond to specific issues or risks identified during testing period.

Exiting the Sandbox:

After testing, the Bank of Tanzania decides whether the financial solution can go live. If there are issues or risks, they might restrict deployment to the Market.

Oversight and Reporting:

Participants must report regularly to the Bank of Tanzania, detailing progress, challenges, and customer-related information. There’s also a final report at the end of testing.

Compliance and Consequences:

Participants must follow the rules, and failure to comply could lead to penalties like non-participation in the sandbox for the period of two years from the period of non-compliance, public naming and shaming through publication of offenders, or reprimands.

Conclusion

These regulations aim to strike a balance between encouraging fintech innovation and ensuring the safety and well-being of consumers. It’s like a testing ground– where new financial ideas can be explored before they hit the real-world market.

The Regulatory sandbox does not mean a permit to avoid the laws and regulations, it is simply a way of building partnership between innovators and regulators.

Should you have any questions, do not hesitate to reach out to us through info@lextaadvisory.co.tz, or visit us at www.lextaadvisory.co.tz for more insights.