Using the regulation sandbox to bring innovation to the banking industry in South Africa

Abstract

The world has been swept up in the rapid progress of technology, and the financial services industry is no exception. Financial technology developments, referred to as FinTech, have forced role-players in the industry, including regulators and banks, to evolve in attempts to provide modern, effective and easy solutions to customers to ensure fair and satisfactory customer experiences, whilst remaining relevant and competitive in the market.

As a result, regulators have also been faced with difficulties in the sense that an antiquated regulatory framework fails to allow for these developments, further hampered by the slow reform of the framework. Different approaches have been developed in dealing with these developments, including the “wait-and-see” approach; the “test-and-learn” approach; the innovation facilitators and regulatory laws and reforms.

This dissertation focuses on the approach relating to innovation facilitators, more specifically, the development and use of regulatory sandboxes, which is an environment where innovators in the financial services industry can test their products, services and business models under the supervision of regulatory authorities. The regulatory sandbox presents an avenue for traditional banks to explore and adopt innovative solutions that can enhance their operations, improve customer experiences, and drive efficiency.

This dissertation explores the development, implementation and success of the regulatory sandbox in South Africa, as well as the FinTech that prompted the establishment thereof. It further gives a comparative overview of the regulatory sandbox in the United Kingdom and concludes with recommendations for the improvement of the regulatory sandbox environment in South Africa.