Regulatory Sandbox

Regulatory Sandbox

We exist to…

Provide a space for safe experimentation

Innovation means pushing boundaries. The Regulatory Sandbox (RSB) provides market innovators with an opportunity to test new products and services that push the boundaries of existing legislation and regulation responsibly, all under the responsible supervision of relevant regulators.

The IFWG’s Regulatory Sandbox

The Intergovernmental Fintech Working Group (IFWG) launched a cohort-based application process for its RSB during April 2020, which means that there is an applications window (the entry criteria are listed below), after which the window closes and the RSB team considers the applications received for entry before testing kicks off with successful applicants. Testing is earmarked for six months and innovators work with the relevant lead regulator(s) to determine appropriate testing parameters. Innovators in the same cohort would typically commence testing at the same time, although testing may be extended under specific circumstances.

The RSB exists to test an applicant’s innovation against legislation and regulation therefore we expect products at a stage of development where they are at least production ready (since this is live testing). The RSB, for example, does not exist to test the quality nor security of code or test the profitability of a solution, nor is it an innovation incubator and does not, for instance, provide funding or business advice. Accepted participants must remain compliant with all existing regulatory requirements and entrance into the sandbox does not indicate a change in a firm’s licensing status or signal tacit or implicit approval.

Innovators in the RSB are expected to report on testing progress at regular intervals. RSB testing offers both the regulators and the innovators an opportunity to consider the legislative and regulatory fit of emerging innovation. At the conclusion of testing, the insights gained should provide clarity on how such innovation could be treated from a regulatory perspective in future, thereby promoting regulatory certainty. Details of an applicant’s solution will not be made public; however, where insights have broader market, policy or regulatory implications such will be shared with industry.

What are the Regulatory Sandbox entrance requirements?

In order to be eligible for the RSB, applicants are assessed on the following initial criteria:
  • The innovation to be tested must be intended for deployment in the South African market.
  • The innovation to be tested must not clearly fit within the existing legislative and regulatory framework or it challenges the existing legislative and regulatory framework.
  • The innovation must be beneficial to consumers or the market at-large (e.g., for Business-to-Consumer companies – lower prices, increased competition, improved access/financial inclusion; for Business-to-Business companies – lower costs, increased efficiency, improved compliance).
  • The innovation must be significantly different from other offerings in the market.
  • The innovation must be ready to be tested, including fully developed technology, sufficient funding to cover the full testing period, and secured partnerships (if required for testing).

IFWG Regulatory Sandbox – Status update

The IFWG announced that applications were open for its first RSB cohort during April 2020 and the applications window closed on the 15th of May 2020. A total of 52 applications were received representing a broad range of financial services activities of which 34 were related to payments, 7 savings and deposits, 5 lending, 3 investments, and the remaining 3 identified as “other”.

The IFWG is extremely pleased with the large number of applications as it is a testimony to the vibrancy and dynamism in the South African fintech landscape. The approval process between the multiple regulators has taken us longer than expected. This was largely driven by the need to clarify treatment of these complex cases which do not currently fit neatly within legislation and regulation. As a result, we have adopted a staggered approach to allow the innovators who are ready to start testing to proceed before the full cohort is finalised. The table below reflects the status of innovators who have already entered the RSB.

In order to ensure that the RSB serves its customers, both regulators and innovators, it is going through a retrospective process reviewing what worked well and what needs to be improved upon.

We will release any future updates on the IFWG website, including details of when the next round of applications will open.

Innovators currently testing as part of cohort 1

Innovator
Innovator’s core business
What is in the sandbox
Testing status
The People’s Fund
Crowd-investing platform that facilitates raising capital for Small and Medium-sized Enterprises (SMEs) with consumers willing to invest. The investments are used to fund SMEs’ purchase orders, products or assets.
The sandbox seeks to clarify the treatment and appropriate framework for the intermediation of crowd-investing platforms.
Testing was successfully completed during July 2021.
Centbee
Innovating digital payments
Centbee is testing the regulatory treatment of crypto assets (specifically Bitcoin (BTC) and Bitcoin Satoshi Vision (BSV)) for low-value cross-border remittances between South Africa and Ghana and vice versa
Testing was successfully completed during August 2021.
Mercury FX (Mercury)
International payments
Mercury is testing the regulatory treatment, and associated regulatory reporting implications and obligations, of crypto assets (specifically XRP) being used for effecting low-value cross-border remittances between South Africa and the United Kingdom and vice versa, subject to certain limits prescribed by the relevant authorities. Testing will in the main be done in terms of the South African Exchange Control Regulations 1961, promulgated in terms of section 9 of the Currency and Exchanges Act, 1933 (Act No. 9 of 1933).
Testing was successfully completed during August 2021.
The Standard Bank of South Africa Limited
Standard Bank is a financial institution that offers banking and financial services to individuals, businesses, institutions and corporations in Africa and abroad.
The scope of testing is limited to the reporting of cross-border foreign exchange transactions submitted to the Financial Surveillance Department of the South African Bank utilising a blockchain platform and verifying that the reporting is timely and in compliance with all relevant reporting rules, as prescribed in the Business and Technical Specifications. The reporting tested will happen in parallel to existing reporting process and clients would not be impacted.
Currently testing.
Santam
Santam offers general insurance products and services in Southern Africa and internationally.
Sandbox testing will seek to clarify the treatment and appropriate regulatory framework for Index Insurance as an insurance product. This will be done by conducting tests on Santam’s Soil Moisture Index product offering.
Currently testing.
Notto
Credit bureau business
To demonstrate that financial services providers will be willing and able to provide mortgage financing for affordable homes primarily on the basis of consumers’ Notto credit scores.
Currently testing.
Investec Bank Limited (Investec)
Investec provides Specialist Banking and Wealth and Investment services to individuals, businesses and intermediaries.
Investec is testing a safe custody service for crypto assets through its innovative Digital Asset Vault offering. This is a secure mechanism for Investec clients to store and transfer crypto assets, reducing reliance on cold storage i.e. complex hardware wallets and/or crypto asset exchanges. The objective of testing the Digital Asset Vault in the Sandbox is primarily to test Investec’s regulatory compliance, regulatory reporting processes, and related risk management frameworks in collaboration with the IFWG.
Testing has been extended another 3 months.
Xago Technologies (Xago)
Cross-border remittances
Testing the regulatory treatment of crypto assets (specifically Ripple (XRP)) in terms of the South African Exchange Control Regulations 1961, promulgated in terms of section 9 of the Currency and Exchanges Act, 1933 (Act No. 9 of 1933), used for effecting cross-border transactions between South Africa and the United Kingdom, and the United Kingdom and South Africa, subject to certain limits prescribed by the relevant authorities, and reporting on such transaction to the relevant authorities.
Testing has been extended another 6 months.
Still have questions on the Regulatory Sandbox? Download our FAQs here.