Thread by @CentralBankJA

On Thursday May 7, 2020, BOJ held a virtual press conference to update local and some regional journalists on the recently announced FINTECH Regulatory Sandbox.
#BOJSpeaks #FinanceTwitterJA 🧵

2. The press conference was addressed by Governor Byles, Deputy Governor in charge of Banking and Currency Operations and Financial Markets Infrastructure, Mrs. Natalie Haynes, and also the Director-General of Jamaica’s Office of Utilities Regulation (OUR), Mr. Ansord Hewitt.

3. The Fintech Regulatory Sandbox became effective on 16 March 2020.

4. But for COVID-19, a formal launch of the sandbox might well have been scheduled by now. Mindful of the distraction the pandemic has created, therefore, the press conference was partially to advise that the sandbox might be socially distanced, but was still alive and well.

5. What is the sandbox? It is a controlled environment for the deployment and testing of financial technology. See Section 1.5 of this document: (bit.ly/2zfs6m2)

6. The objectives of the sandbox are to provide a platform to encourage innovations in financial services, promote competition, and promote financial inclusion, while protecting consumers and mitigating risks associated with digital financial services.

7. The sandbox is also intended to promote the Bank’s improved understanding of FINTECH products, services, and business models currently available and inform the relevant framing of new regulations or amendments of existing regulations.

8. Who qualifies to apply? Regulated financial entities and FINTECH Companies in partnership with a deposit-taking institution (DTI).

9. Regulated financial entities in this context means deposit-taking institutions (DTIs), cambios, remittance service providers and securities dealers which have been authorized by the FSC to participate in the sandbox.

10. Why the stipulation for FINTECH companies to partner with a DTI?

11. In addition to encouraging innovation for the improvement of Jamaica’s current and future financial system, the sandbox is also intended to facilitate a secure legislative pathway to facilitate that innovation.

12. One factor hindering potential innovation is that electronic payment service providers who are not regulated financial entities are not covered by the Proceeds of Crime Act (POCA), and therefore could be seen as operating outside the ambit of money laundering guidelines.

13. Another complication is that while all regulated financial entities are covered by POCA, only DTI’s are legislatively authorized to offer payment service products, so no FINTECH company can currently offer such a product independently or in partnership with a non-DTI.

14. It is because of these limitations why, on 2 March 2020, BOJ announced the withdrawal of the guidelines for Electronic Retail Payments Services (ERPS 2 Guidelines). bit.ly/2An5913

15. To address this limitation, BOJ is developing a regulatory framework for payment service providers that would include FINTECH entities and other non-financial entities, and anticipates that lessons learned from the sandbox will inform the relevant policy proposals.

16. With their status as regulated financial entities covered by POCA, cambios, remittance services and securities dealers do NOT have to partner with DTI’s, but they do have to await new legislation to offer payment service products.

17. To ensure that all innovation doesn't wait on new legislation, and since DTI’s are in a special position, the sandbox provides the temporary insurance of requiring all non-regulated financial applicants to partner with a DTI in order to participate in the sandbox.

18. In these partnerships, it is the DTI that will be held accountable.

19. How do you apply? Completed applications must be submitted electronically via email:
[e-mail]. Upon receipt of all relevant documents, the service level standard for application processing is up to 30 business days.

20. The Sandbox Guidelines have all the requirements for entry, such as the application form, application requirements, and a fit and proper questionnaire. These guidelines can be accessed via the Bank’s website here: bit.ly/35Sf2iZ

21. Currently, the sandbox guidelines are developed in line with Section 28 of the Payment, Clearing and Settlement Act of 2010 (PCSA, 2010) (bit.ly/2SYwAVk).

22. BOJ will apply these guidelines in oversight to ensure consistency of treatment of all entities within the sandbox.

23. The Payment, Clearing and Settlement Act, 2010 and Section 27, Bank of Jamaica Act (bit.ly/2Wp2tID), provides the broad framework for BOJ to oversee payment, clearing and settlement systems.

24. The maximum time to test in the Sandbox is 24 months. By that time, it is expected that the legislative framework for regulation for PSPs will be in place, so new FINTECH entities or entities with new products would not need to partner with a DTI.

25. There is no minimum time, so DTI’s participating on their own, especially, or the FINTECH company partnerships, could possibly exit the sandbox sooner, since there is no need to wait on the pending legislation.

26. If a FINTECH company already in the sandbox wants to ‘graduate’ from the partnership with a DTI and operate on their own when the legislation permits, it would have to briefly re-enter the sandbox to show how it would operate independently.

27. What of central bank digital currency (CBDC)? It is something BOJ is still researching internally, in light of what it would entail – including legislation - and how it does or does not suit our specific circumstances, and the door is open for discussion.

28. Since it is much broader, more central bank-centric, and may require more infrastructure than a retail payment solution, CBDC technology providers might be better served meeting with BOJ directly to discuss their product, as opposed to first entering the sandbox.

29. What of the state of our technological backbone and the capacity of our telephone and internet service providers to effectively facilitate FINTECH products? That is an issue to be addressed by central government and the OUR.

30. Thanks for your kind attention!