The Communications Authority of Kenya in January sent out a call for public consultation for emerging technologies regulatory sandbox.
A regulatory sandbox can be considered as a regulatory space where a regulator allows anyone within the delimited space and time to test out business models, products and services without the usual regulatory restrictions in order to foster innovation. It usually targets innovators and startups to conduct ‘experiments’ that will inform the regulator on how a particular potential or future regulation can best be formulated.
While commonly associated with Fintech products, usually, the regulator will set out the purpose of the sandbox which in most cases promotes competition and entrepreneurship. In addition, the criteria and eligibility are usually laid out in the founding document. What is an important aspect of a sandbox is that after the sandbox trial, the regulator can authorise for the tested innovation to run fully or in a modified format and make the requisite legal and regulatory changes to allow the tested innovations to scale.
Regulatory sandboxes go back to the UK in 2016 when the first one was introduced and have since been adopted in other countries.
Kenya has had a number of regulatory sandboxes such as the one by the Capital Markets Authority (CMA) established in 2019 aimed at broadening Kenyan capital markets and the Insurance Regulatory Authority (IRA) in 2020 on inclusive insurance.
Sandboxes have also been utilised on the African continent. The Bank of Sierra Leone utilised a regulatory sandbox in 2018 while the Rwanda Utilities Regulatory Authority also established it in 2017. Regulators, innovators and consumers all benefit through evidence-based policy making and the establishment of laws and regulations that allow new innovations to be birthed safely.
According to the World Bank which did a global analysis of the sandboxes in over 70 countries, sandboxes promote financial inclusion which is necessary in the African continent. Kenya’s financial inclusion in 2022 stood at 83% of the adult population.
Pezesha, a Kenyan-based company tested an online crowd funded platform where investors could provide loans to MSMEs during the CMA regulatory sandbox. The CMA used the tests to create regulations for debt-based crowdfunding.
Sandboxes also foster partnerships and competition in the market thereby enabling the overall development of such markets while at the same time exposing risks in a particular area related to the market.
In its guiding note, the Communications Authority of Kenya seeks to grow innovation in the ICT sector in Kenya.