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Regulatory sandbox for the insurance industry


The Insurance Commission will soon be issuing a framework for the adoption of regulatory sandbox in the Philippines. A regulatory sandbox is a framework set up by a regulator that allows FinTech start-ups and other innovators, such as insurance companies, to conduct live experiments in a controlled environment under a regulator’s supervision. It is a novel regulatory innovation. It is “designed to incubate innovation in the financial sector in a relaxed, but safeguarded regulatory environment.” The Asian Development Bank also defines regulatory sandbox as “a framework set up by a finance sector regulator to allow small-scale live testing of innovations by private firms in a controlled environment [operating under a special exemption, allowance, or other limited, time-bound exception] under the regulator’s supervision.”

It “also provides a symbiotic environment for innovators to test new technologies and for regulators to understand their implications for the financial sector and consumer protection”. The advent of the regulatory sandbox is a recognition of the widespread innovation happening today in the financial sector, i.e. banks and insurance companies, which poses challenges to financial regulators, i.e. the Insurance Commission.  Consequently, in August 2018 a fintech committee was also created under the Financial Sector Forum (FSF), which is composed of the BSP, Insurance Commission, Philippine Deposit Insurance Corp., and the Securities and Exchange Commission. Under this committee, the FSF committed to harmonize its regulatory responses to fintech innovations in the financial sector.

As stated by the late BSP Governor Nestor Espenilla, “regulatory policies and standards must evolve alongside emerging technologies.” But since it is part of an experiment, regulation is calibrated. It is a successor to the flexible “test and learn” approach or methodology which has been adopted by the BSP as early as 2004. The “test and learn” exercise then was “to allow e-money product pilots in the market at a time when established reference models did not yet exist in other countries.” The test and learn approach is “learning by doing.” This test and learn approach is now referred to as the regulatory sandbox.

An expert said: “In the emerging financial landscape, FinTech sandbox is intended to promote technological innovation by allowing FinTech companies to test new services and products in the financial, credit, and insurance sectors, under the supervision of the competent authorities for a limited period of time. In this structures and controlled environment, firms can better understand the opportunities and risks presented by innovations and their regulatory treatment through a testing phase.”

The first regulatory sandbox was launched in the United Kingdom in 2015 under the regulatory supervision of the Financial Conduct Authority.

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