Kenya’s Capital Markets Authority (CMA) has proposed rules to create a regulatory fintech sandbox for innovations which do not fit within the country’s current financial regulatory framework.
The proposed draft rules to enable the introduction and testing of financial technology (fintech) products such as peer-to-peer finance (crowd-funding), crypto-currencies, distributed ledger technology (blockchain technology), artificial (e.g. algorithmic trading), big-data, RegTech credit rating, online lenders, and online banks.
They give safe legal status and a safe space to investors and developers to confidently test and unlock these unique financial innovations tailored for Kenyan consumers. The draft rules were drawn after consultation and in lines with rules in Australia, Singapore, Abu Dhabi, Malaysia and UK as guides.
The fintech tools must be ready for testing in a live environment; this will allow them to be tested for defined periods of time and for them to be reviewed by peer groups who work with the CMA. Once companies apply to the CMA, they are to get decisions within 21 days, and at the conclusion, they are to give the CMA a report of their outcomes.
• The CMA will have an annual fintech day that will feature all the sandbox participants.
• Participation in the sandbox can be revoked if a company does not do what it says it intended to, has a security breach, or harms the public, among other violations.
The sandbox rules aim to position Kenya as an investment destination of choice. CMA has in the past drafted rules on REIT’s, bonds and venture capital. Will these new fintech sandbox rules lead to more M-Pesa-like innovations? Will they enable the legal use of bitcoin in Kenya? Review the rules (download) and give the CMA feedback by July 26.
EDIT: In December 2018, The CMA published draft rules to access the sandbox space for the public to review and give feedback on. Some clauses in the proposed rules include payment of a non-refundable fee of Kshs 10,000 (~$100), submission of company registration documents, CV’s of all founders and key management personnel and list things like the customer acquisition plan, what they propose to test in a live environment and how that will help accelerate the depth of Kenya’s capital markets. During the sandbox phase, companies are to report on fraud attempts, customer complaints and lessons learnt and these shall remain confidential. They may also be suspended from the environment for things like data breaches.
EDIT: In October 2020, the CMA approved the exit of Pezesha Africa, granting it a ‘No Objection’ which allows it to .. operate its debt-based crowdfunding platform in the Kenyan capital markets, after a successful one-year testing period in the Regulatory Sandbox.