BNM’s New Sandbox Introduces a Fast Lane for Financial Institutions

BNM’s New Sandbox Introduces a Fast Lane for Financial Institutions

by February 29, 2024

Bank Negara Malaysia (BNM) has announced updates to its Financial Technology Regulatory Sandbox Framework policy document in a bid to further boost fintech innovation in the country.

Initially launched in October 2016, the framework was designed to foster a regulatory environment conducive to fintech deployment, encouraging meaningful innovation in the financial sector.

By allowing companies to test fintech solutions in a live setting while maintaining appropriate safeguards, the sandbox has facilitated over 110 applications from both new and established companies, enabling the exploration of technologies like electronic Know-Your-Customer and various new business models.

However, the one-size-fits-all approach previously adopted by the sandbox has been identified as a potential hindrance to innovation, particularly for early-stage fintech startups facing challenges with the sandbox’s eligibility criteria.

In response, the framework has been updated to simplify the eligibility assessment for its Standard Sandbox pathway, aiming to align the assessment’s rigor with the developmental cycle of new innovations more closely. The regulator added that it would attempt to give its response to the applicants within 15 days.

Additionally, a new feature, the Green Lane, has been introduced. This accelerated track is designed to enable financial institutions with a strong track record in risk management, governance, and compliance to test innovative solutions more swiftly by granting them regulatory flexibility.

Overview of application and assessment process

This update, effective from 29 February 2024, opens up the sandbox to all financial institutions, explicitly noting, however, that fintech companies are not eligible for Green Lane participation on their own. They can, though, collaborate with financial institutions in sandbox projects, subject to BNM’s approval.

Entities that are eligible to apply to participate in the Standard Sandbox and Green Lane

Applications for the Green Lane will be accepted twice a year, with BNM evaluating applicants’ capabilities in managing various risks, including credit, operational, and underwriting risks, as well as their adherence to consumer fairness, data privacy, cybersecurity, anti-money laundering (AML), countering financing of terrorism (CFT), and, where applicable, Shariah compliance.

Singapore had similarly upgraded its own Fintech Regulatory Sandbox back in 2021, known as Sandbox Plus. However, instead of providing an accelerated track for established financial institutions, Singapore had instead expanded its eligibility criteria to include early adopters of technology and receive a financial grant, in a single application.

By doing this, the Monetary Authority of Singapore intended to provide a more conducive environment for new players to gain broader traction in the island state, and provide more options to consumers and businesses.