BSP allows test and learn approach for banks

MANILA, Philippines — Banks and financial institutions are now allowed to explore the potential of products and services using new technology, according to the Bangko Sentral ng Pilipinas.

BSP Governor Felipe Medalla said the Monetary Board has approved the Regulatory Sandbox Framework, formalizing the test and learn approach that allows BSP-supervised financial institutions (BSFIs), third-party service providers, and new players to offer financial products and services using new technology to a limited number of customers in a controlled environment.

“The BSP has always championed responsible innovation since we see it as a catalyst to promote efficiency in the financial system and expand financial inclusion. We are deeply committed to ensuring that attendant risks in using new technologies are effectively managed through enabling and responsive regulations,” Medalla said.

The framework enables the participants in the sandbox to explore the potential of new technologies without posing significant risks to financial stability or harming the consumers.

“We can achieve a careful balance between the perceived benefits of these emerging technologies while managing attendant risks by providing a controlled environment for these digital players to harness technology and probe the limit of what’s possible,” Medalla said.

Moreover, the BSP chief said the new framework would promote a level playing field for relevant stakeholders who share the central bank’s goal of promoting the welfare of Filipinos by maintaining a safe, secure, and truly inclusive financial system.

Under the framework, each sandbox shall undergo a four-stage process, namely, application, evaluation, testing, and exit stages.

The sandbox project will run for 12 months and the regulator would determine whether the sandboxed product or service is “fit for broader or mass adoption.”

Insights from the regulatory sandbox projects will inform the development of policies necessary to regulate the activities within and around new or emerging financial solutions.

Applicants for regulatory sandbox experiments may also be advised to use a simplified approach known as the “Regulatory Sandbox Lite,” which runs on a shorter timeline.

This approach is only available to BSFIs involving financial products or services that are already within the scope of existing regulations.

The central bank has adopted the test and learn approach since 2004, which gave rise to one of the first mobile wallets and e-money regulations in the world and brought about the successful implementation of the country’s first cloud-based core banking system.

Under its Digital Payments Transformation Roadmap, the BSP aims to convert 50 percent of total retail payments to electronic channels and increase the number of Filipino adults with bank accounts to 70 percent by 2023.

With the pandemic serving as catalyst, the share of digital payments to retail transactions jumped to 30.3 percent in 2021 from 20.1 percent in 2020, while the number of banked Filipino adults almost doubled to 56 percent in 2021 from 29 percent in 2019.