How CBN's Sandbox Initiative Will Affect Emerging Fintech Startups

Apex Bank of Nigeria released a new framework for regulatory sandbox operations in Nigeria which will serve as a regulatory oversight for fintech Startups.
The sandbox is a formal process for firms to conduct live tests of new innovative products, services, delivery channels, or business models. This will be done in a controlled environment and will be supervised by the Central Bank of Nigeria.
The Bank of all banks says the sandbox will be open to existing licensees such as financial institutions and fintech initiatives as well as other companies like telecom companies looking to test innovative financial products and services.
This will pose a major barrier for emerging fintech Startups in Nigeria. Given the sensitive nature of finance, some experts agree that tough regulations are meant to curb bad eggs in the industry.
While that is true, such regulations will affect both the good and the bad. Genuine individuals and entrepreneurs with exciting ideas could not easily launch their products/services. Meanwhile, online fraud remains a pressing issue, as the reputation of Nigerians are being tarnished in the Technology ecosystem.
The increasing rate of internet fraud is the reason for the proposal of regulatory sandboxes to provide a safe testing environment for innovative solutions for the financial market. However, this could be provided by either regulators or private companies.

The Central Bank of Nigeria Initiative

The CBN’s initiative seems to be building on from the provisions of the industry sandboxes. Seeing as it is only open to incorporated firms, it appears regular developers might not get access to the sandbox.
The CBN states that the sandbox will accept any initiative that is not already covered by existing regulations. Any innovation that seeks to:

• Improve the effectiveness of existing financial services
• Help financial institutions manage risks
• Address gaps in or open new opportunities for investments in Nigeria
• The Central Bank of Nigeria will also ensure that new products do not present a threat to the activities of existing financial institutions and consumers in general.

Though CBN claims the framework will reduce time-to-market for fintech products, this particular provision might hinder the launch of disruptive products.
Other regulators are proposing theirs
As pointed out by the PwC fintech report, fintech in Nigeria is still unclear. In the absence of a specific fintech law, which was initially proposed but unattended to, different regulatory bodies cover various aspects of financial services.
The Securities and Exchange Commission (SEC), the Nigerian Communications Commission (NCC), the National Information Technology Development Agency (NITDA), and the CBN are all involved with fintech regulations in one form or the other.
The SEC, for example, already has a proposed sandbox for fintech companies in the country. Its effectiveness, on the other hand, remains uncertain. The NCC also recently began plans for its own regulatory sandbox which might cover innovations made by telcos; such innovations sometimes include mobile money.
By 2023, Nigeria could potentially have three regulatory sandboxes. This might either be a source of confusion or bring about collaborative regulations.
Sandboxes are present in other countries of the world. In the US, respective states develop their own sandbox. The Financial Conduct Authority in the UK oversees the regulatory sandbox for Financial companies.