In a virtual fireside discussion during Singapore Fintech Festival 2020, Patrick Njoroge, Governor of the Central Bank of Kenya argued that regulators must use their convening power to bring people and innovators together, this would change the dynamic between innovators and the regulators themselves to improve the journey toward digital transformation.
“Speaking for regulators, I think we’ve got a bad wrap. Yes, regulators are supposed to remain focused on the risks and understand the risks posed by a new product but they absolutely must be agnostic about the technology so to speak.”
Njoroge furthers that while is very easy to get excited about the technology side, when products or ideas are presented to them the focus should not fall on the technology itself. Rather, there are two considerations which must be addressed instead.
First, financial stability and elements of the central bank’s mandate should be considered, and second, the question of ‘what is the problem that this product solves’ must be answered.
“This is all based on the premise that we [central banks] are here to solve people’s problems. The regulator therefore should not be in the business of pushing down innovation. On the contrary, I think regulators should be the most innovative people of all because they are the ones willing and able to ask the necessary questions and ‘walk the innovation journey’ alongside technology providers.”
Njoroge adds that Kenya should be considered a pioneer of sorts in this area, as the country was “doing sandboxing before sandboxing was invented. We called it the test and learn approach when M-Pesa was brought to us.”
Digital identity should also be promoted, he argues, and “Kenya needs a new system of identity that can build on what we already have and on that is much more biometric in nature.”
Referencing the progress made in Singapore and India, Njoroge continues: “the first element is to learn from others and not to reinvent the wheel. It must be an identity system that keeps up with the leading technological advancements.”
Importantly, however, on the question of striking a balance between a successful digital identity system that meets KYC thresholds but also has the potential to cause financial exclusion, Njoroge believes that a risk-based approach should be pursued.
“KYC is extremely important, but it has to be risk-based. On one side of the spectrum you have large financial institutions making millions of transactions and for this a firm really must be stringent on KYC.
“On the other end of the spectrum, while there are still KYC elements that the provider of e-wallet transactions must be aware of for a street-side fruit seller, these two parties should not be subject to the same level of KYC. It must be risk-based and it should not lead to financial exclusion.”