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KEYNOTE ADDRESS BY MR. PAUL MUTHAURA, MBS, CHIEF EXECUTIVE CAPITAL MARKETS AUTHORITY, DURING REGULATORY SANDBOX POLICY GUIDANCE NOTE VALIDATION WORKSHOP AT THE HILTON HOTEL ON THURSDAY, 21ST FEBRUARY 2019

Good morning.

Today is a truly landmark event as we welcome you all in the hope of securing your final validation of the Capital Markets Regulatory Sandbox Policy Guidance Note. This journey began in earnest on June 30, 2016 when the Authority hosted a stakeholder workshop to present a policy framework for Fintech oversight in Kenya modelled on a Regulatory Sandbox and I am proud to note we are now at the cusp of operationalizing that policy.

The Authority’s commitment to the introduction of a sandbox is firmly drawn from the Kenya Capital Markets Master Plan 2014/2023 which identifies technological innovation as one of the 5 centers of excellence of the Kenyan capital markets our industry aspires to deliver.

This has seen us taking progressive steps to create a conducive environment to unlock the potential of the FinTech space in Kenya including the signing of cooperation agreements with regulators with well-established FinTechs frameworks such as the Australia Securities and Investments Commission (ASIC) and the Abu Dhabi Global Markets Financial Services Regulatory Authority. Further the Authority has leveraged from these cooperation arrangements to build significant capacity in the area of FinTech to enhance its competence in regulating this ever-evolving space. We have also benefited from strategic engagements with domestic partners such as Nailab, IBM, i-Hub, ICT Authority, the Financial Sector Regulators Forum as well as external organizations such as IOSCO, World Bank Group and GFIN all in trying to make an informed decision on how to best oversight the FinTech space in Kenya. This journey has also seen us making extensive submissions to the Task Force on Blockchain and Internet of Things in order to contribute to the National Policy on Financial Innovation

As a management team, have been lucky to work within a highly responsive context given the Board of the Authority, in formulating its Strategic Plan 2018-2023, committed to driving the leverage technology across the entire capital markets value chain, as one of our key strategic priority of the Board. To this end the Authority has been willing to proactively review its supervisory and regulatory model to take into consideration the fast-changing environment cutting across capital markets’ product/services design, infrastructure and supervision. I therefore wish to thank the Board for their guidance, strategic focus and continued support

Ladies and Gentlemen: It is indeed a compelling time to be an innovator in this technological age as Kenya cements its reputation as a global technological powerhouse, building on the strong foundations of the globally acclaimed M-PESA innovation.

As a regulator we are humbled by the sheer number of innovators in Kenya and beyond who have positively responded to our calls for consultations on how to create an innovative environment to test their product before they venture into commercial scale. This validation workshop is the culmination of an extensive public consultation and stakeholder engagement process undertaken in coming up with a market- reflective and facilitative Policy Guidance Note.

The PGN was put out for public exposure between December 12, 2018 and January 21, 2019 in line with the Constitutional imperatives to ensure effective public participation in the policy making process. Further, the Authority proactively engaged key relevant stakeholders including FinTech firms and innovators, capital markets industry stakeholders, peer regulators, law firms and international organization, amongst others to obtain feedback on the proposed Policy Guidance Note in a bid to ensure smooth implementation. The response has been outstanding and today we will be presenting a summary of your feedback, the revised PGN and the next steps towards the launch and subsequent ‘go live’ of the regulatory sandbox

Ladies and Gentlemen, this process has been driven by our strategic objective to enhance the Authority’s strategic influence under our Strategic Plan 2018-2023. We believe that well-structured partnerships with key stakeholders are a critical catalyst for the growth and development of our capital markets. We have in this regard, initiated discussions with fellow sectoral regulators on concerns raised touching on their jurisdictional remit and I am pleased to report we have received positive feedback towards implementing the Fintech Regulatory Sandbox.

The successful implementation of the Regulatory Sandbox is dependent on putting in place the necessary governance, internal processes and procedures at the Authority. To this end the Authority has set up a ‘Sandbox Review Committee’ (SRC) whose Mandate is to provide tailored, coordinated regulatory support, dedicated to the Sandbox project and ecosystem. The ‘Sandbox Review Committee’ will additionally serve the primary function of reviewing and considering sandbox applications, monitoring the implementation of the test plans by successful sandbox entrants and transition to license categories.

Our partnerships will strengthen this arrangement through catering for capacity building to the Sandbox Review Committee (SRC) on areas including but not limited to Intellectual Property Rights protections, entity establishment and Cybersecurity, to co-opting additional expertise into the team that will be evaluating applications and assisting in conducting tests within the regulatory sandbox.

Ladies and Gentlemen, many of you may already be asking yourselves whether the Regulatory Sandbox will serve FinTechs across the Financial Services industry in Kenya. I would like to clarify that the CMA Regulatory Sandbox can only serve Financial Innovations that are directly within the regulatory perimeter of the CMA. We appreciate that we are ahead of our peers in this area and acknowledge that each Financial Sector Regulator is at various levels of preparations to oversight FinTechs. I would also therefore wish to clarify to the audience so as to manage your expectations that only capital markets specific FinTechs will be allowed to participate in our sandbox pending further concurrence from peer regulators.

We however envisage a single Financial Sector Regulatory Sandbox in the future which will benefit largely from lessons learnt from the CMA model. As a matter of fact, the Boards of the Financial Sector Regulators have discussed FinTech as one of the key areas of cooperation and I am delighted to announce that we are in the process of finalizing a FinTech support facility to act as a one stop shop for all FinTech related queries touching on the financial sector. facility will address growing inquiries as well as provide both information and other effective regulatory support services to both domestic and international financial innovators providing linkages with other sectoral regulators on queries touching on their respective regulatory perimeters.

Ladies and Gentlemen, allow me to emphasize that the emergence of these technologies needs to be treated with due caution. On the one hand, they introduce opportunities to drive additional demand for capital market products and services; and on the other hand, they also have the potential to introduce new prudential risks that can, not only destabilize the market, but also present a new scope of market conduct risks that can put-off retail investors for years to come if not properly managed. The Authority therefore continues to urge members of the public to exercise caution in participating in any Initial Coin Offerings and Cryptocurrency transactions lacking regulatory sanction.

At this juncture , Ladies and Gentlemen, allow me to note our recent admission to the Global Financial Innovation Network, a move to support the transformation of the capital markets in Kenya through nurturing innovation. The Global Financial Innovation Network (GFIN), an international network of 29 financial services regulators and related organizations, committed to supporting financial innovation. GFIN seeks to provide a more efficient way for innovative firms to interact with regulators, helping them navigate between countries as they look to scale new ideas. This includes a pilot for firms wishing to test innovative products, services or business models across more than one jurisdiction. It also aims to create a new framework for co-operation between financial services regulators on innovation-related topics, gaining insights and sharing different experiences, lessons and approaches. This cements our efforts to support innovation in the capital markets, noting the important role of financial technology (Fintech) as a key enabler of performance excellence under the 10-year Kenya Capital Market Masterplan, 2014-2023.

In this spirit, it would also be opportune to commend the Nairobi Securities Exchange for the launch of a twin innovative initiative- the Ibuka Incubator and Accelerator Program. Ibuka will enable the NSE host local Kenyan companies on a 10 month incubator programme aimed at enhancing their visibility, offer the companies’ access to a host of experienced financial advisors and consultants for expert advisory, and exposure to local and international investors.

Ladies and Gentlemen, going forward we expect to receive further input on the PGN that will be presented to you shortly after which it shall be finalized and approved for implementation. We will be sharing the operationalization plan by the end of today’s session Thereafter, the Authority shall embark on receiving and reviewing sandbox applications based on the defined criteria for consideration and admission to the sandbox. This will herald a new phase in the growth trajectory of our capital markets with the coming into force of a guiding policy and legislative framework on adoption of financial technology.

With that Ladies and Gentlemen, we count upon you our fellow regulators, key strategic partners, capital markets industry stakeholders, innovators and Fintech firms for your critical support for the successful implementation of our Regulatory Sandbox initiative.

In conclusion, I extend my sincere gratitude to all of you as the key stakeholders and for your collaboration and support that will enable all of us make strides in fostering innovation and the adoption of technology in the capital markets industry. My very specific gratitude to CGAP and FSDK for your excellent support throughout this journey

I am optimistic that this programme will promote product development, revolutionize and democratize access to the capital markets by Fintech firms and companies in Kenya.

I wish you fruitful discussions that will translate into finalization of a facilitative, relevant and effective Policy Guidance Note.

Thank you!