The success of the Colombian Regulatory Sandbox

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Carlos Fradique-Méndez
Brigard Urrutia, Bogotá DC
cfradique@bu.com.co

Nicolás Alonso
Brigard Urrutia, Bogotá DC
nalonso@bu.com.co

Three years ago, the Colombian Superintendence of Finance (the ‘SFC’) created the ‘Financial and Technological Innovation Internal Working Group’ (‘InnovaSFC’) with the main purpose of leading and implementing the entity’s financial and technological sandbox strategy for the years to come. In May 2018, InnovaSFC launched the Colombian regulatory sandbox and the innovation Hub, the first sandbox of South America, with the specific purpose of implementing an environment and regulatory framework for live, time-bound testing of technological innovations applied to the financial, stock and/or the insurance market, in a controlled and supervised space (the ‘Colombian Sandbox’). In essence, according to the SFC, the applicants must demonstrate that their business model is in fact related with the financial, securities or insurance market, that it is innovative in comparison to the current market standards, that it represents a benefit for the financial consumer, and that it facilitates financial inclusion or it contributes to the development of the Colombian financial market.

Under applicable regulations, any individual or company may apply to be admitted in the Colombian Sandbox to test business models, applications, processes or products that have technology innovation components and with the purpose of generating an impact on the Colombian financial, stock and/or insurance market. The Colombian Sandbox also has the purpose of implementing a workspace for financial innovation that provides a balance between the application of current financial regulations and the implementation of innovative and disruptive business models.

After more than two years of operation, the Colombian Sandbox has given significant results and has become a valuable and powerful tool for promoting innovation and technological transformation in the Colombian financial, securities and insurance market. During these two years, the Colombian Sandbox has graduated four powerful projects and it was accepted as a member of the Global Financial Innovation Network, which is the international network of financial regulators and related organisations committed to supporting financial innovation in the best interests of consumers, and that entitles the SFC to perform transnational testing regarding innovative projects. InnovaSFC has worked diligently to promote financial development with comprehensive supervision under the premises of preventing crisis, the illegal exercise of any financial activity and the promotion and support for new technological advances. As evidence of its success, the projects that have been launched by InnovaSFC through the Colombian Sandbox are summarised below.

The first project launched by the Colombian Sandbox was ‘Ualet’, which was presented by AFIN Comisionista de Bolsa SA, a stock brokerage firm subject to the control and supervision of the SFC. Ualet is a business model that permits financial consumers, by means of an innovative technology, to digitally access and invest in collective investment funds (fondos de inversion colectiva). In other words, Ualet is an app for smartphones that offers digital accounts for financial consumers to participate in collective investment funds that are subject to the supervision of the SFC, given that it replicates the simplified electronic process for opening a bank account. Ualet was admitted to the Colombian Sandbox on 1 February 2019 and launched on 1 October 2019.

The second project launched by the SFC was presented on 4 April 2019 by the Colombian Banking and Financial Institutions Association (Asociación Bancaria y de Entidades Financieras de Colombia – ‘Asobancaria’). Within the Sandbox, Asobancaria proposed, and studied together with the officers of InnovaSFC, a project for promoting financial education to foster non-present transactions in order to increase security among financial customers. This project was successfully launched on 4 October 2019.

The third project successfully launched by the Colombian Sandbox was the project presented by an alliance between a Colombian financial institution, Acciones & Valores Comisionista de Bolsa SA, a stock brokerage firm, and a Fintech company, Tpaga SAS. Similar to the first project described above, the Tpaga project offers financial consumers digital accounts and e-wallets that serve as payment mechanisms but are backstopped by participation units in a money-market fund which is subject to the control and supervision of the SFC. This project was launched on 6 December 2019.

Finally, the most recent project successfully presented by and graduated from the Colombian Sandbox is the one developed by a trust company, Credicorp Capital Fiduciara SA and named ‘Tyba’. This project offers simplified access mechanisms to collective investment funds. In other words, it allows financial consumers to invest any amount of money in certain collective investment funds administered by the Credicorp without the need to physically attend the offices of the financial institution. This project was launched on 1 May 2020.

Such projects, and those that are currently working under the supervision of the SFC within the Colombian Sandbox, are evidence that the Colombian market is embracing disruption models in the banking, financial, stock and insurance market. Finally, based on the successful experiences of the Colombian Sandbox, the Colombian Government introduced Decree 222 of 2020 which, in practice, introduces the concept of ‘banking as a service’ in the Colombian market, with the intention of fostering innovation in the Colombian financial system while mitigating any sort of regulatory asymmetries between Fintech companies and financial institutions.

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