Fintech regulatory sandbox in Ukraine: prospects and top priorities
One of the key effective elements of the NBU Strategy of Ukrainian fintech development until 2025 is the development and implementation of a full-fledged regulatory sandbox concept for a quick testing of innovative projects. This will allow the Ukrainian fintech to take a significant step forward in the new financial products and services development, in the improvement of their quality and lowering the usage costs.
The financial regulators and fintech companies have been cooperating on a regulatory sandbox basis all over the world for about 5 years already. The first model was launched in the UK in June 2016, which made it possible to test innovative products in a live environment within the regulatory sandbox framework, but under the constant control and supervision of the regulatory authority. This is necessary to familiarize with and test completely new services, which aren’t yet regulated by the law, that subsequently results in the implementation of useful innovative products and the improvement of regulatory policy. Then in the UK, after the first year of the special legal regime operation, 90% of the fintech companies that completed testing in its first group continued to develop and tap into the wider market, and more than 40% received investments during or following their sandbox tests.
The National Bank of Ukraine plans to launch a full-fledged regulatory sandbox in the second half of 2022, and Ukraine will subsequently join the list of countries that have already created their own sandbox systems in the financial market — Australia, the UAE, Malaysia, Singapore, etc.
Prospects and top priorities
Ukrainian fintech performs considerable progress and has great potential and prospects. For example, 55.2% of transactions with payment cards were non-cash, and 52% of fintech companies operated on the international market in 2020. The regulatory authority should build effective relationship with the fintech market in order to promote the development and implementation of the fintech trends, raise investments for the sector and make financial products more accessible and comprehensible.
The NBU has established the Expert Council for communication with innovative companies and projects, and the provisions regarding the functioning of the regulatory sandbox in the NBU has already been included in the draft law №4364 on payment services which was registered in parliament in November 2020. The NBU is planning the test launch of the regulatory sandbox in Ukraine in December this year, and the full launch, as I mentioned above, in the second half of 2022.
Oleksiy Shaban noted that fintech companies and innovative projects began to apply after the launch of the Expert Council for communication with innovative companies and projects. The NBU Expert Council considered 9 applications in 2019, and 12 applications in 2020, which mainly related to the payment market. The ways to improve the user experience and the methods to make payments faster and cheaper were considered.
The current top priorities include the development of a legislative and regulatory framework. The laws on financial and payment services already embody the regulatory concept of a sandbox. It’s also necessary to create the sandbox operating model, its clear regulations and the details of the organizational structure.
Regulatory sandboxes are no longer a new or exotic concept. At the same time, the professionals and consumer groups observe that sandboxes can be misused or even abused. However, a well-designed and executed sandbox can facilitate innovation and protect consumers, avoiding the pitfalls that concern many critics. The world practice shows that the participants can be excluded from the sandbox for the personal data breach, the failure to comply with the program, a significant number of service disadvantages, etc.
The introduction of such a legal regime will contribute to the proper implementation of the services necessary to work in different ways with the biometric documents, alternative scoring systems, the “know your customer” principle, blockchain-based money transfers, EDS, etc.