The Capital Markets and Securities Authority (the “CMSA”) has recently issued the draft Capital Markets and Securities (Regulatory Sandbox) Regulations, 2024 (the “Draft Regulations’), aimed at fostering innovation, enhancing financial inclusion and protecting investors in Tanzania. The Draft Regulations establish a legal framework for the regulatory sandbox which is a controlled environment designed for testing innovations in capital markets products and services.
The primary objectives of the Draft Regulations are among others to: -
Key terms include: -
Application Process and Eligibility Criteria
Under the Draft Regulations, the CMSA invites eligible applicants with innovative solutions to submit their applications within thirty (30) days from the date an invitation notice is issued. Application must include, among others, the applicant’s business strategy, financial information, a resolution of the board of directors approving the company to participate in the regulatory sandbox and proof of anti-money laundering measures implemented by the applicant. Furthermore, applicants must demonstrate the practicality of their novel solution(s), risk mitigation capabilities and a commercial deployment strategy following successful testing. The CMSA assesses applications for completeness, investor protection measures and possible market benefits before processing applications within forty-five (45) days. Testing in the sandbox will commence within one (1) month following acceptance and may run up to twelve (12) months.
Regulatory Sandbox Cohorts, Testing and Compliance:
The CMSA plans to run two (2) testing cohorts annually, focusing on solutions that align with market needs. During testing, participants must follow CMSA-provided conditions, submit periodic reports and document any progress made. The sandbox aims to balance innovation with investor protection by requiring participants to assess and mitigate risks actively.
Sandbox participants must appoint a CMSA’s liaison officer with relevant qualifications to handle customer/investor complaints, maintain data security and seek CMSA approval for changes to testing terms. Regular due diligence on customers/investors, backed by clear disclosure of risks and ensuring customer protection must be conducted. Participants must provide monthly progress reports, detailing testing milestones, challenges and investor data security measures, with a final report due within thirty (30) days post-testing.
The CMSA oversees sandbox operations and determines operational standards, such as transparency requirements and reasonable fees. Participants must follow Tanzanian intellectual property legislation as well as the Personal Data Protection Act Number 11 of 2022. The CMSA may also conduct inspections of participant activities and records to ensure compliance. Non-compliance may result in consequences, such as a temporary suspension from the sandbox or a public reprimand.
Exit, Revocation and Voluntary Withdrawal:
The CMSA may revoke an approval if participants fail to meet conditions, breach data security requirements or pose public risks. Before revocation, CMSA will issue to a participant a thirty (30) days’ notice for the participant to address issues, unless immediate revocation is necessary. Participants can voluntarily exit from the regulatory sandbox by issuing a thirty (30) days' written notice, provided that they meet obligations and ensure investor protection. If a participant’s approval is revoked, they may reapply after one (1) year.
CMSA Oversight and Participant Obligations:
Throughout the testing process, the CMSA maintains oversight, monitoring compliance, assessing business conduct and verifying that participant’s records are kept transparently. This includes adherence to transparency standards, investor protection and compliance with existing laws, unless the CMSA grants exemptions. The Draft Regulations also require innovations to align with intellectual property protections and limit client interaction levels to mitigate risks.
Conclusion:
The CMSA's Draft Regulations for a regulatory sandbox in Tanzania's capital markets offers a structured framework that promotes innovation while protecting investors and enhancing market resilience. By enabling controlled testing of innovative financial products, the Draft Regulations are expected to assist in fostering a dynamic financial sector and broaden financial access in Tanzania. The sandbox initiative supports the development of a secure, inclusive and innovative financial ecosystem, positioning Tanzania to benefit from emerging financial technologies in a responsible and sustainable manner.
By Fredy Richard – Intern at Kilindu Giattas & Partners
Note: This is not a legal opinion, and the contents hereof are not meant to be relied upon by any recipient unless our written consent is sought and explicitly obtained in writing.
