Nghiinomenwa Erastus

Innovators in the financial space can develop unique economic and technology-led solutions, but they have to be tested by the central BankBank first.

Reveal the Financial Technology (Fintech) Innovations Regulatory Framework, signed into effect on 14 October 2021.

The framework will generally apply to innovations in payment systems, banking and credit lending activities, and cross-border remittances, among others.

The framework does not recognise cryptocurrency, and it will not fall in the category of fintech to be regulated through it.

While the scope is not exhaustive, it will exclude cryptocurrency mining/trading and exchange platforms and initial coin offerings and payment solutions that support cryptocurrencies.

The Regulatory Framework guides how the Bank of Namibia will treat financial technology (FinTech) innovations that are not already subjected to the Bank’sBank’s existing regulations.

The central BankBank explained that most FinTech innovations are deemed beneficial to the financial sector and efficient financial services to consumers.

However, they are usually not accommodated or covered by existing laws and regulations.

According to the Framework, the regulators are faced with either granting or refusing access to FinTech entities to introduce innovations in their jurisdictions without establishing a physical presence.

The central BankBank highlighted that the benefits and opportunities from FinTech innovations are welcomed. Still, the accompanying risks should be managed to protect the consumers of such innovations and the financial system’s integrity.

With this framework, the Bank aims to manage risks emanating from financial innovations and maintain the financial system’s integrity by safeguarding financial stability. It also seeks to promote consumer protection and financial inclusion by ensuring that the public access safe and affordable financial services.

The Regulatory Framework provides a step-by-step analytical framework to identify whether an innovation qualifies as a FinTech innovation followed by a phased-approach regulatory programme to understand.

This will enable evaluation and test the innovation before the regulatory outcome on the innovation can be determined. 

The Bank has identified three regulatory tools for the Regulatory Programme: the Allow-and-See Approach, the Test-and-Learn Approach, and the Regulatory Sandbox Approach. 

During the FinTech Innovation Identification Stage, if the innovation cannot be identified as a FinTech innovation that falls within the scope of financial services regulated by the BankBank. 

The financial service/FinTech is being provided within the scope of the following financial sectors: banking, payment, cross-border payment services (Exchange Control) and lending services.

Stage two of the analytical framework assesses the FinTech Innovation’s Regulatory Status. 

The Bank will establish whether the FinTech innovation is regulated in any other jurisdiction during this stage.

If the FinTech innovation does not exist in any other jurisdiction and the entity is a start-up, such an entity will automatically enter the Bank’s Regulatory Programme.

Under stage three, The FinTech innovation will undergo a risk assessment to create a risk profile. 

Bank’s risk assessment on the proposed FinTech will consider whether funds collected are protected and impact financial stability and integrity.

The Bank will also assess the FinTech proposal on its adherence to Anti-Money Laundering, Criminal and Terrorist Financing requirements.

At the same time, the adoption of cyber and data security principles will also be required that the proposed innovation needs access to existing banking, payment, or exchange control systems.

This is to ensure the innovation does not disrupt the smooth functioning of the financial system and its participants.

Moreover, the innovation will require direct or indirect access to participate in the existing clearing and settlement systems.

The FinTech innovation will also be required to promote interoperability (likelihood) to enhance financial inclusion and the uptake of affordable.

After the Bank determines the type of Regulatory Programme, the FinTech innovation will depend on the analytical and risk assessment outcome.

The FinTech innovation may be subjected to; an Allow-and See Regulatory Approach, the Test-and-Learn Regulatory Approach, or the Regulatory Sandbox Approach. 

The central BankBank explained that no blanket regulatory approach would be applied after risk assessment.

An applicant cannot decide the type of Regulatory Programme it wishes to be admitted. 

Different conditions will apply to different innovations depending on the business models, the type of financial services offered, and the risk profiles. 

The Framework Work explained that FinTech innovation with a low-risk profile might be subjected to the Allow-and-See Programme or the Test-and-Learn Programme.

A FinTech innovation with a medium to high-risk profile may be subjected to the Test-and-Learn Programme or the Regulatory Sandbox Programme. 

The decision around which regulatory programme to apply and the participating conditions depend entirely on the Bank’sBank’s assessment. 

During the existing phase, the central BankBank will also determine how a FinTech innovation that went through the Regulatory Programme should exit and the way forward.

At the end of the Regulatory Programme, the innovator will be required to provide the BankBank with a report based on its experience in the facility.

The report should include a detailed record of all operational and technical incidents and procedures taken to resolve them, customer queries and resolutions, proposed steps, and the way forward. 

The central BankBank reserves the right to cancel a Regulatory Programme at any time before the end of the programme period if the participant breaches any of the Bank’sBank’s laws, regulations, and programme conditions.

It must also be noted that regulations pertaining to Anti-Money Laundering, Criminal and Terrorist Financing cannot be relaxed during a programme.

There are no admission or participation fees for the Regulatory Programme. Email: erastus@thevillager.com