Kazakhstan’s Regulatory Sandbox: A Boost to Fintech Innovation
Astana, Kazakhstan - In a move to promote fintech innovation in the country, Kazakhstan has established a regulatory sandbox, allowing startups and financial institutions to test their products and services in a controlled environment. The initiative is aimed at enhancing knowledge of risks associated with innovations, promoting compliance culture, and establishing communication with the fintech market.
What is Fintech?
Fintech refers to technology-enabled innovation in financial services that can result in new business models, applications, processes or products with an associated material effect on the provision of financial services. The regulatory sandbox provides a platform for fintech companies to engage with regulators, raise questions and seek clarifications on fintech-related issues.
Benefits of Regulatory Sandbox
- Enhanced knowledge of risks associated with innovations
- Promotion of compliance culture
- Establishment of communication with the fintech market
- Opening up the market to innovations while establishing regulatory certainty
For fintech companies, the benefits include:
- Improved knowledge of regulations
- Reduced time to enter the market
- Testing of products, technology, and markets
Regulatory Sandbox in AIFC
In Astana International Financial Centre (AIFC), the regulatory sandbox is envisaged by the Financial Services Framework Regulations and FinTech Rules. The AIFC regulator may waive or modify any condition, restriction, or requirement of the regulations and rules on the application of a person or its own initiative.
Licensing Approach
The licensing approach involves:
- Authorisation to fintech lab participants
- Temporary licences for testing
- Full authorisation for permanent operation
Additionally, the AIFC provides clarifications and guidance on fintech activities and develops regulatory policies to facilitate the adoption of technological innovations.
Key Message
While a regulatory sandbox is not intended to create a risk-free environment, it aims to promote fintech innovation while minimising the risks of poor client outcomes posed by these innovative solutions. The success of the sandbox depends on the willingness of regulators to take responsibility for failures and their power to waive or modify regulations.
CBDC and Fintech Sandboxes
The AIFC also has a central bank digital currency (CBDC) sandbox, which requires entry regulatory requirements standard for each type of participant. In contrast, fintech sandboxes have bespoke regulatory requirements developed for each firm, allowing startups and existing financial institutions to apply.
Conclusion
In conclusion, Kazakhstan’s regulatory sandbox is an important initiative that promotes fintech innovation in the country while ensuring regulatory certainty. By providing a controlled environment for testing and development, the sandbox aims to foster growth and development of the fintech industry in Kazakhstan.