Regulatory Sandbox Framework Document

 

I. Definitions

Fintech: New technologies that relate to the financial industry, and aim to improve and develop the financial activities including launch of advanced products, services and business models in the financial services industry.

Sandbox: A safe space that allows for the experimentation of innovative products and services relating to FinTech without incurring the cost of obtaining official licenses. The environment caters for those products and services that are based on, or relevant to, the electronic payment of funds, and that also require the Central Bank of Kuwait’s approval prior to their launch in the market

Proposed Product/Service: Innovative FinTech products/services that are based on, or relevant to the electronic payment of funds.

The Applicant: Any company, or an individual or multiple of individuals, including partnerships with a third party, applying to participate in the Regulatory Sandbox for the purpose of testing a proposed financial product or service.

The Participant: An applicant that has been granted approval by the Central Bank of Kuwait to participate in the Regulatory Sandbox to start the technical and operational testing of the proposed product or service.

Soft launch: The process of launching the proposed product or service for a specific group of volunteer customers in the local market.

Initial Approval: The approval issued by the Central Bank of Kuwait to start the soft launch.

Volunteer Customers: The customers participating in the soft launch that are fully aware of the related potential risks.

Final Approval: The approval granted by the Central Bank of Kuwait to deploy the proposed product or service in the local market.

II. Introduction

In line with the Central Bank of Kuwait (CBK) efforts to introduce appropriate policies and regulations to promote the advanced products, services, and business models considered to be among the most important pillars of competition in the modern financial services industry, the Regulatory Sandbox Framework has been issued commensurate with the instructions regulating the electronic payment of funds*. Such efforts aim to support and govern innovative initiatives, which serve the national economy, by facilitating opportunities to put forward these innovations in line with a methodology that does not expose the financial and banking system to risk.

* Regulations issued on ……… under the Law No. 20/2014 concerning the electronic transactions.

III. Objectives

The main objective of the Regulatory Sandbox Framework is to enhance CBK's role in adopting and promoting innovation by temporarily exempting participants of certain requirements pertaining to either the implementation of the regulatory instructions or the required licenses. Along with providing an appropriate controlled environment for testing the proposed products and services, the Regulatory Sandbox also provides numerous benefits to the participant. Such benefits include enhancing the participant's efficiency in complying with regulatory requirements, reinforcing the participants' risk management skills, providing the participant with CBK's technical view and finally enhancing the participants' competitive advantage, by:

  1. Reducing both the routine time-cycle to launch the proposed product or service in the market, and any related potential costs.
  2. Facilitating the opportunity to test the proposed product or service before deploying to the local market.
  3. Enabling cooperation between innovators and the CBK in order to facilitate complete compliance with all relevant regulations applicable to the deployment of the proposed product or service.

IV. Scope

The Regulatory Sandbox Framework targets both companies and individuals striving to provide innovative FinTech products or services that are based on, or relevant to the electronic payment of funds either by using a new technology or an existing technology in an innovative way.

V. Stages of the Regulatory Sandbox

The maximum duration to complete all stages of the Regulatory Sandbox is one year, with the availability of an extension based on CBK discretion. Applicants / participants wishing to exit the Sandbox during any stage are to officially notify the CBK in writing with the necessary justifications and clarifications. Relatedly, the CBK has the right not to accept any subsequent applications by the same applicant / participant for a period of one year, from the date of the official notification. The stages of the regulatory Sandbox are as follows:

  • Application Stage:

    The Regulatory Sandbox application form is to be filled in and submitted, along with the required documents, as per the guidelines stated on the Regulatory Sandbox page at the CBK's website.

    Once submitted, the CBK shall review the application to ensure that the proposed product or service is in line with the scope of the Regulatory Sandbox Framework. The applicant will be informed of CBK’s decision, whether to accept or reject the application, based on the following eligibility criteria:

1. Local deployment and innovation:
The proposed product or service to be deployed in the local market should be innovative, i.e. using new technology or using existing technology in an innovative way, and is based on, or relevant to, the electronic payment of funds.

2. Value Proposition:
The proposed product or service must provide benefits to both the customer in particular, and the market in general, as follows:

Customer benefits: providing the service or product to the customer at a lowered cost, ensuring enhanced performance and execution along with higher safety standards, while improving efficiency and quality through introducing the product or service in an innovative manner.

Market benefits: Achieving market growth and efficiency by promoting effective competition and providing risk management solutions.

3. Readiness to test:
The proposed product or service must be in an advanced stage of development deeming it ready for testing. As such, the following must be prepared:

A complete testing plan that includes clear and well-defined objectives, parameters and standards to ensure the successful completion thereof.

A volunteer customer protection plan that provides the necessary guarantees and appropriate compensation if necessary.

An assessment report of the emerging risks from the proposed product or service, and the necessary measures to mitigate those risks.

4. Deployment Plan:
A clear deployment plan must be prepared for the proposed product or service to be implemented once final approval is granted by the CBK. The plan should include an implementation timeframe for local market deployment.

  • Evaluation Stage:
    In this stage, the application will be evaluated thoroughly from all technical, security and regulatory aspects related to the proposed product or service. The duration of this stage will depend on the level of complexity of these aspects. The applicant will be notified of the results, whether to move ahead to the next stage of the Regulatory Sandbox or not, once the evaluation process is completed.

  • Experimentation Stage:
    At this stage, the CBK, in collaboration with the participant, shall initiate a technical and operational testing of the proposed product or service on an appropriate controlled environment. Testing will include measuring the level of compliance with CBK's regulations, ensuring adequate security measures are embedded within the proposed product or service, which includes customer confidentiality and privacy standards, as well as measuring the efficiency level of operations. Simulations may be conducted via the CBK's banking systems controlled environment, as an extra measure to ensure the integrity of the proposed product or service. Scope of testing is to be determined on a case-by-case basis. Participants are required to fully commit with the testing process and submit reports required by CBK. At the end of the testing stage, the CBK will determine whether or not the participant moves to the next stage.

  • Accreditation Stage:
    At this stage, the CBK will either grant final or initial approval, or reject the proposed product or service.

First: Final Approval:
The participant will be officially notified by the CBK of the approval, and will have to comply with the following:

  1. Compliance with all of CBK's relevant regulations, particularly those related to the electronic payment of funds.
  2. Obtaining all licenses related to the laws enforced in the State of Kuwait.

Second: Initial Approval:
The participant will be notified by the CBK of the initial approval, and will therefore be able to initiate the soft launch of the proposed product or service along with the participation of the volunteer customers. The participant is required to inform the volunteer customers of the potential risks related to the proposed product or service, set adequate risk mitigation measures, and ensure customer data protection measures are set in place.

A precise scope for the participation of the volunteer customers is to be agreed upon between the participant and the volunteer customers on a case-by-case basis.

The participant is able to request an extension for the soft launch duration. The CKB will either approve or reject the request based on its discretion.

Given the completion of the soft launch, and after providing the CBK with the results, CBK’s subsequent decision will be one of the following:

  1. Grant the final approval of the proposed product or service, therefore the participant is to comply with section (Final Approval/1,2) of this document.
  2. Return the proposed product or service to any of the previous stages of the regulatory Sandbox.
  3. Reject the proposed product or service.

Third: Rejection:
The participant will be officially notified by the CBK of the rejection.