The South African Intergovernmental Fintech Working Group (IFWG) is opening its regulatory sandbox (RSB), launched in April 2020, for applications from industry following the introduction of a new approach in which the sandbox will remain open for the foreseeable future.

The IFWG also, on October 12, released the publication of a feedback report documenting the IFWG’s experience in accepting a cohort of applications in 2020.

Through this testing, the IFWG aims to better understand the risks and benefits associated with new market solutions and to make more informed decisions regarding policy positions and regulatory frameworks.

The RSB also seeks to provide regulatory clarity to participants and industry more broadly, while providing insight into innovation for regulators and the policymaker to inform appropriate policy and regulatory responses, it added.

"The RSB is a framework used by regulators across the world to foster innovation in the financial services sector while maintaining oversight of emerging risks.

"In South Africa, the RSB offers a controlled and live environment for financial sector innovators to safely test new financial products or services they seek to bring to market against existing regulation, all under the responsible supervision of members of the IFWG and with input from the relevant regulators," the IFWG said.

The adjusted rolling-based approach means that the RSB will remain open for applications. However, the relevant regulators will provide guidance on their areas of focus, regulatory appetite, and capacity and resource constraints in assessing applications throughout the RSB period.

It is anticipated that the new approach will enable the IFWG to be more agile in responding to industry innovation and be more expedient in providing feedback to applicants.

The IFWG RSB received 54 unique applications from 49 applicants to the 2020 cohort.

Nine sandbox tests from eight firms were accepted into the RSB and were advanced into the following categories, including three cross-border payments using crypto assets sandbox tests, one reporting of cross-border payments using distributed ledger technology test, one safe custody services test, one tokenisation of existing securities test, one crowdfunding test, one index insurance test, and one test of the use of non-traditional credit data.

Further, the updated process is subject to further assessment to determine its adequacy and effectiveness as the IFWG strives to meet the demands of both regulators and applicants.

"Initially, the IFWG decided on a cohort-based approach where regulators received applications during an open application window, after which a group of applications was shortlisted for finalising RSB agreements to enable testing. The intention was to report back on the first cohort once all the testing had been completed.

"However, enabling testing between multiple regulators is a complex and involved process, resulting in testing starting in a delayed and staggered fashion. The IFWG therefore conducted a retrospective review prior to closing the first cohort to consider the performance of the RSB in achieving its objectives. The outcome of the review resulted in a shift from the cohort-based to an adjusted rolling-based approach," the IFWG noted.

The IFWG members are the Competition Commission, the Financial Intelligence Centre, the Financial Sector Conduct Authority, the National Credit Regulator, the National Treasury, the Prudential Authority, the South African Revenue Service and the South African Reserve Bank.