The Bangko Sentral ng Pilipinas (BSP) has approved the regulatory sandbox rules formalizing the “test and learn” (T&L) approach for startups and innovators to experiment with new financial products and services in a controlled environment.

BSP Circular No. 1153, or the Regulatory Sandbox Framework, refers to a set of guidelines for a controlled, time-bound, live testing environment which “may feature regulatory waivers at the (BSP’s) discretion.” The testing environment may involve limits or parameters within which firms must operate.

The T&L is described as a system that will allow BSP supervised financial institutions (BSFIs), third-party service providers of BSFIs, and new players to offer financial products and services using new technology to a limited number of customers in a controlled environment. The BSP first introduced the T&L in 2004.

“The BSP has always championed responsible innovation since we see it as a catalyst to promote efficiency in the financial system and expand financial inclusion,” said BSP Governor Felipe M. Medalla on Friday, Sept. 9. “We are deeply committed to ensuring that attendant risks in using new technologies are effectively managed through enabling and responsive regulations,” he added.

The new framework, which was approved last Sept. 5, enables sandbox participants to explore the potential of new technologies “without posing significant risks to financial stability or harming the consumers.”

Medalla said with the regulatory sandbox, the BSP will have a “careful balance between the perceived benefits of these emerging technologies while managing attendant risks by providing a controlled environment for these digital players to harness technology and probe the limit of what’s possible.”

The framework allows each sandbox a four-stage process such as application, evaluation, testing, and exit stages. Sandbox projects will run for 12 months. After this period, the BSP will decide whether the sandboxed product or service is "fit for broader or mass adoption".

The BSP aims to have form insights from the regulatory sandbox projects in aid of policy develipment to regulate the activities within and around new or emerging financial solutions.

The circular provided applicants for regulatory sandbox experiments of a more simplified approach known as the "Regulatory Sandbox Lite", which runs on a shorter timeline. This approach is only available to BSFIs involving financial products or services that are already within the scope of existing regulations.

Basically, the BSP’s objectives is to enable an environment for “responsible innovation to promote the development of an inclusive digital financial ecosystem that is complemented by sound risk management system.”

The new circular also has an oversight framework to form or designate units within the central bank to be called “Sandbox Oversight Team” to oversee the various stages of the sandbox activities.

The BSP’s sandbox experimentation has always had strong consumer protection, data privacy and data protection elements.

The BSP said participants will adopt measures to protect the rights and interests of consumers in implementing sandbox experimentation to ensure that customers are well-informed and protected in availing of the product being tested. “Customers should be informed that the product or service being offered is under the regulatory sandbox platform and that their availment is part of the pilot implementation,” said the BSP.

BSFIs not only need to ensure customers are informed of all the possible risks associated with the product as well as possible implications, but that there will data sharing in the experimentation process.