By Angelica Joy Galvez, Bank Officer, Kim Jayson Torda, Bank Officer and Jovelyn Hao, Deputy Director, Bangko Sentral ng Pilipinas (BSP)

Overview of Regulatory Sandboxes in the Philippines

The Philippines, led by the Bangko Sentral ng Pilipinas (BSP), has been proactive in embracing sandbox frameworks as a regulatory tool. Before the Regulatory Sandbox Framework was institutionalised in 2022, the BSP had already adopted a “test-and-learn” approach to support innovation while managing associated risks. This collaborative effort between regulators and applicants allowed both new and established Fintech entities to undergo rigorous assessment before full deployment of emerging financial solutions.

In addition to the regular sandbox path, the BSP offers alternative approaches. The Regulatory Sandbox Lite caters to existing financial institutions seeking to innovate within current regulations. Meanwhile, the Thematic Cohort approach targets specific regulatory agendas for emerging technologies. As of 30 June 2024, the BSP has received 13 sandbox applications, most of which aim to innovate the financial services industry through blockchain technology.

Following BSP’s lead, the Securities and Exchange Commission (SEC) introduced the Strategic Sandbox, while the Insurance Commission (IC) implemented sandbox frameworks for insurance technology innovations and for insurance, health maintenance organisations, and pre-need industries. These developments indicate a broader adoption of sandbox methodologies across various sectors in the country.

Looking ahead, the BSP remains committed to collaborating and sharing information with other regulatory entities through the Financial Sector Forum (FSF) to continuously align regulatory frameworks with evolving technologies and market needs.

Reflection and Learnings

The Tech for Good Institute’s report on regulatory sandboxes in Southeast Asia provides a comprehensive summary of regional initiatives and regulatory approaches. The report fosters regulatory learning and suggests opportunities for process improvement based on the practices observed in other countries.

• The BSP espouses a regulatory sandbox environment that is both policy-oriented and innovation-driven

Central to the Regulatory Sandbox Framework is regulatory learning and discovery. To institute appropriate regulatory controls for new financial use cases, the BSP must understand the sources and types of novel risks involved and identify the most effective risk mitigation measures. These insights would then be translated into risk management frameworks after the experimentation. Similarly, proponents must integrate innovative solutions or technologies into their proposed products or services as part of the eligibility criteria.

• Collaboration with other financial regulators is essential.

To harmonise efforts among financial regulators in the Philippines, the BSP leverages the FSF for information sharing and peer learning. The FSF provides a platform to facilitate discourse and align policy formulation and implementation in the financial services industry. Collaboration among FSF member agencies involves mutual learning about each regulator’s frameworks, use cases, and challenges.

• It is too early to draw robust conclusions on the Regulatory Sandbox’s overall impact on the financial market.

While initial gains were observed from early use cases of the test-and-learn approach (i.e., e-money regulations in 2009 and cloud-based core banking systems in 2017), measuring the broader impact of the Regulatory Sandbox remains challenging. Since the Framework was formalised only in 2022, definitive assessments of its effectiveness are premature due to its limited scale and the time required for its impacts to permeate the market.

The ABCD for an Innovative Regulatory Environment

• Accept complexities. New technologies further complicate the rather complex space of financial services. Complexities may stem from the absence of clear legal and regulatory structures, the use of unfamiliar technologies, the balancing of interests between public policy and business objectives, and the lack of resources to support internal institutional governance arrangements to operate the regulatory sandbox. Regulatory sandbox operators, such as the BSP, IC, and SEC, should readily accept these inevitable complexities and strive to develop frameworks and institutional arrangements to lessen potential adverse impacts.
• Be agile but cautious. Among the objectives of the Regulatory Sandbox Framework is the swift delivery of innovative products and services to the market. However, agility comes with risks. As such, the BSP has set non-negotiable risk management standards that every proponent must adhere to, including data privacy, cybersecurity, anti-money laundering, and consumer protection. These are minimum regulatory requirements to prevent or, at least, minimise the impacts of unintended consequences.
• Cultivate Capabilities. Upskilling is imperative as digital transformation accelerates and technologies evolve rapidly. This entails engaging in workshops on project management and operating regulatory sandboxes, thematic cohorts, and emerging technologies such as artificial intelligence, decentralised ledgers, smart contracts, application programming interfaces, and quantum computing. These efforts aim to raise awareness of the Regulatory Sandbox Framework, stimulate interest, and educate BSP-supervised financial institutions and potential fintech players on harnessing this tool for their digital transformation initiatives.
• Develop synergies. The BSP’s Regulatory Sandbox Framework is currently managed by a dedicated Sandbox Oversight Team (SOT) composed of experts from fintech, digital banking, information technology (IT) risk and supervision, and cybersecurity. As the need arises, the SOT may draw from the expertise of BSP staff from other areas, such as capital markets, payments, non-bank operations, and IT operations, as well as from other regulatory agencies. These collaborative engagements enable a holistic evaluation of regulatory sandbox applications and assist in the co-creation of regulatory frameworks.

By embracing the idea that the present can be immensely improved with adequate time and resources for discovery, regulatory sandbox regimes provide a safe environment and testing ground for innovating and transforming financial services. Exploring the unknown paves the path for breakthroughs that ultimately drive societal progress and growth.

The views and recommendations expressed in this article are solely of the author/s and do not necessarily reflect the views and position of the Tech for Good Institute.

About the organisation

The Bangko Sentral ng Pilipinas (BSP) cultivates a regulatory landscape that encourages digitalisation while prioritising prudent risk management. Its regulatory framework for emerging financial technologies (fintech) is guided by the principles of proportionality, tech agnosticism, collaboration, security, data privacy, and consumer protection. The BSP pursues evidence-based policies to ensure that frameworks effectively guide courses of action and risk management measures.

About the writers

JOVELYN M. HAO, MMPA, CPA, CISA, CRISC, CPISI

Deputy Director

Fintech Innovation and Policy Research Group

Technology Risk and Innovation Supervision Department

Bangko Sentral ng Pilipinas

With over a decade of experience in technology risk supervision, Ms. Jovelyn M. Hao (Jovie) brings in key insights and valuable inputs as she leads the Fintech Innovation and Policy Research Group under the Technology Risk and Innovation Supervision Department. FIPRG serves as the primary contact for fintech players in the Philippines, particularly those with underlying BSP-regulated activities. Ms. Hao is likewise heavily involved in various policy initiatives of the BSP such as the recently issued Amendments to the Regulations on Outsourcing, as well as the ongoing initiatives on Open Finance Framework and Regulatory Sandbox Framework. Prior to her current role, she was also a pioneer member of the Cybersecurity Supervision and Oversight Group.

KIM JAYSON V. TORDA, MBA, MPP, CPA, CISA, CRISC, CPISI

Acting Division Head

Fintech Innovation and Policy Research Group

Technology Risk and Innovation Supervision Department

Bangko Sentral ng Pilipinas

Mr. Torda is currently the Acting Division Head leading the Virtual Asset Service Provider (VASP) supervision and Regulatory Sandbox Framework implementation under the Fintech Innovation and Policy Research Group. His current role involves leading the supervision and examination of BSP supervised institutions, licensing of VASPs, and conducting policy research related to FinTech, emerging technologies and business models. He is a member of the BSP’s Sandbox Oversight Team and leads the evaluation of multiple sandbox projects such as blockchain-based supply chain system for gold buying activities, stablecoin issuance, and crypto staking, among others. He earned his Master of Business Administration from the Colegio de San Juan de Letran – Manila, and his Master of Public Policy specializing in Regulations: National and International Regimes and Integrity and Anti-Corruption from the Australian National University.

ANGELICA JOY S. GALVEZ, CAMS

Bank Officer II

Fintech Innovation and Policy Research Group

Technology Risk and Innovation Supervision Department

Bangko Sentral ng Pilipinas

Ms. Angelica Galvez is a certified Anti-Money Laundering Specialist with a keen interest in the Digital Economy, Blockchain Technology, and Virtual Assets. Her experience extends to transaction monitoring and addressing financial crimes, honed through her experience in financial institutions and a dynamic fintech company specializing in financial and cryptocurrency services. Additionally, Ms. Galvez has provided critical technical and ad hoc support on infrastructure-related matters under the economic agency of the Philippine Government. Her diverse background underscores her adeptness at navigating complex financial landscapes and her commitment to advancing the field of financial crime prevention.