The Bangko Sentral ng Pilipinas (BSP) said there are at least six BSP supervised financial institutions (BSFIs) and non-supervised entities that already entered its "regulatory sandbox" for an evaluation of their proposed innovative financial technologies in electronic or e-money and virtual asset services which should be “fit-for-purpose financial services” to unserved and underserved communities.

The BSP did not identify the six applicants, but said these are BSFIs, third-party service providers of BSFIs, and new players that will “undergo a sandbox implementation of their products and services” if they passed initial screening.

A regulatory sandbox is a framework set up by a financial sector regulator to allow small-scale, live testing of innovations by private firms in a controlled environment under the regulator's supervision.

So far, the six have proposed solutions that will use diverse technologies, said the BSP. These include robotics process automation, decentralized ledger technologies, and application programming interfaces (APIs), among others, in the areas of e-money and virtual asset services.

“The BSP constantly engages with the applicants as further evaluations are conducted,” said the BSP.

For now the six applicants which are startups and innovators will undergo the process of experimentation with new financial products and services in a controlled environment.

The sandbox 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”.

To foster an inclusive digital financial ecosystem, the BSP approved the Regulatory Sandbox Framework in September 2022 as Circular No. 1153.

The framework basically institutionalizes the test-and-learn (T&L) approach, which was adopted by the BSP in 2004. “The approach serves as the central bank’s mechanism to explore the potential of game-changing technologies that support growth and development and bridge financial inclusion gaps in the Philippines,” said the BSP.

The sandbox for digital finance innovations is included in the National Strategy for Financial Inclusion 2022–2028.

BSP Circular No. 1153 is 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 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 framework enables sandbox participants to explore the potential of new technologies “without posing significant risks to financial stability or harming the consumers.”

With the regulatory sandbox, the BSP will be able to balance between the perceived benefits of these emerging technologies while managing attendant risks.

Meanwhile, 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 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.

The 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.

“With regard to oversight, experiments are internally driven and monitored in the developer sandbox. As such, the proponent does not need to update regulators on the progress and results of testing. For regulatory sandboxes, however, experiments are facilitated and monitored by the BSP, with regular check-in meetings between the central bank and the applicant or proponent. Activities in the regulatory sandbox may also be initiated by the BSP,” said the BSP.