Kenya is a thriving fintech hotbed, ranking in the top 100 globally among the largest fintech ecosystems in the world. As per the most recent stats by Global Fintech, Nairobi is the largest fintech hub in Africa with the country being marked as the best African country for Fintech startups.

These statistics are a remarkable indication of the robust growth in Fintech innovation in Kenya. However, regulation of new innovations is an indispensable imperative to ensure that new products are safe for consumers and that the interests of all stakeholders are safeguarded.

With the country’s regulators beholding a rapid growth in fintech innovation, the question became, how do we regulate innovation without stifling it? The Capital Markets Authority(CMA) sandbox provided a solution.

The CMA regulatory sandbox is a platform that was launched in 2019 to promote the live testing of innovations in a tailored regulatory environment. The platform allows innovators to run their new products for a test period of 12 months to ascertain their market suitability before being allowed into full operation.

During the test period, the start-ups are assessed against certain parameters, including:- data security and privacy, interoperability and data flows, intellectual property rights safeguards, etc. The sandbox provides regulatory guidance to the innovators while giving the regulator an opportunity to identify regulatory lacunas.

At the end of the 12 months, the innovator is provided with a report, and the regulator determines whether or not the product is eligible for mass market consumption.

Who is eligible for the sandbox? To apply, a firm must be incorporated in Kenya or be licensed by a regulatory partner in the Global Financial Innovation Network. The product/service must also be at a fully operational level (so to say, the sandbox is not an innovation incubator). A non-refundable fee of Ksh10,000 is payable on application.

The CMA regulatory sandbox is a proactive approach aimed at creating a balance between fostering innovation while being vigilant of investor protection, financial stability and integrity risks. It also allows the regulator to understand the operational realities of emerging innovations in fintech and frame subsequent regulations informed by real-life functionalities instead of hypothetical insights.