Benjamin E Diokno: Digital finance - a thrust toward financial
inclusion
Speech by Mr Benjamin E Diokno, Governor of Bangko Sentral ng Pilipinas (BSP, the central
bank of the Philippines), at the Sandbox Program Launch, Manila, 28 February 2022.
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Officers and members of the Fintech Alliance PH and Alibaba Cloud Intelligence Philippines, and
our financial inclusion partners, good morning!
The Bangko Sentral ng Pilipinas (BSP) is pleased to see the private sector play an active role in
catalyzing the development of accessible, affordable, and user-friendly financial products and
services, such as through initiatives like the Alibaba Cloud's Project AsiaForward Sandbox
Program.
We have seen how our neighbors harnessed the tangible benefits of financial technology
(fintech) innovations.
In Malaysia, Bank Negara Malaysia introduced its regulatory sandbox in 2016. The framework
provided a flexible regulatory environment that allowed fintech companies to experiment in a
production environment.
In Thailand, the Bank of Thailand, Securities and Exchange Commission, and Office of Insurance
Commission each introduced its own regulatory sandbox. As a result, e-KYC was launched;
interest rate for digital savings was increased; and the volume and quality of digital lending were
improved.
In the Philippines, the significance of digital finance in achieving financial inclusion is highlighted
in the recently launched National Strategy Financial Inclusion, or NSFI 2022-2028.
The NSFI intends to harness the potential of digital finance in creating better consumer
outcomes, and empowering consumers to achieve their life aspirations. The NSFI is banking on
the capability of digital technologies to facilitate innovations that enable the delivery of
fit-forpurpose financial services to the unserved and underserved sectors.
One of the strategic initiatives identified in the NSFI is the implementation of an industry sandbox
for digital finance innovations.
Over the years, the BSP has embraced innovative technologies to bridge financial inclusion gaps
in the Philippines. Under what we call the "test and learn" approach, the BSP has allowed
emerging technologies, along with new business models, to be implemented under a limited
scope and environment and applicable regulatory framework.
With a test and learn approach, the BSP gains a better understanding of the risks of new
technology or business model
On the side of financial service providers, the test and learn approach gives an opportunity to test
the business case of proposed innovations prior to actual launch.
This approach was used in 2009 when the BSP issued the electronic money regulation. Fast
forward to 2017, during the time when most institutions were hesitant and unsure of the cloud
services, the approach was again used to further explore the new technology, resulting in the first
cloud deployment for core banking services under a pilot implementation.
In line with the objectives of the NSFI, he BSP now seeks to formalize the existing test and learn
approach into a comprehensive and structured regulatory sandbox framework.
Under the proposed framework, the BSP shall (1) evaluate sandbox applications as to
completeness and eligibility based on standards; (2) determine the viability of the proposed
solution by evaluating the test plan; (3) monitor the implementation of the approved test plan; and
(4) assess whether the sandbox activity should be terminated or approved for full commercial
roll-out.
This framework will help direct BSP's approach to encourage greater participation in our
regulatory sandbox, especially for promising businesses that may be hesitant to raise
groundbreaking ideas to existing regulators.
The BSP has also implemented fintech-related policies and digitally driven initiatives to
complement the test and learn approach and regulatory sandbox.
First, on digital banking...
The BSP has approved six digital banking licenses which we expect will drive greater efficiency
in the delivery of financial products and services, especially for the unserved and underserved.
Second, on open finance...
In January this year, the Open Finance Framework was formally launched, along with the
threeyear Open Finance Roadmap 2021-2024. The roadmap outlines priority actions, including the
adoption of industry-accepted standards, capacity-building for regulation, and cooperative
oversight, which are all fundamental to establishing an Open Finance ecosystem.
Lastly, R&D of frontier technologies...
The BSP also conducts research and development activities on frontier technologies, such as
Central Bank Digital Currency (CBDC). Moving forward, the BSP plans to roll out Project
CBDCPh, which is the BSP's pilot project to build organizational capacity and hands-on knowledge of
CBDC design, architecture, technology, and policy implications.
To promote the adoption and frequent use of digital financial services, trust in the system must
be present. The success of digitalization initiatives rests upon ensuring that consumers are
protected online and that they have adequate financial and digital literacy.
Accordingly, the BSP has actively supported the proposed Financial Consumer Protection Act
(FCPA). The bill is now awaiting signature of President Rodrigo Duterte.
When signed into law, the FCPA will provide protection to consumers of financial products and
services-including those delivered via digital channels. Specifically, the FCPA requires financial
service providers to adopt and implement information security standards to ensure the safety
and protection of the financial transactions and data privacy of their clients.
The BSP has also created an internal technical working group to proactively address
cybersecurity concerns on financial transactions and data privacy of their clients.
The BSP has also created an internal technical working group to proactively address
cybersecurity concerns on financial transactions and consumer complaints. Among the TWG
functions is to coordinate with law enforcement agencies, relevant government authorities, and
other stakeholders on cybersecurity management, prosecution of scammers; and prevention of
cyber-related threats and scams.
Lastly,t he BSP continues to implement a Digital Literacy Program (DLP) to increase public trust
and confidence in the digital financial ecosystem and encourage the massive usage of digital
financial services.
As the BSP continues to champion financial digitalization initiatives, everyone is called to join this
journey of transformation. Let us work together in building an economy that is characterized by a
robust, secure, and resilient digital financial infrastructure, with tech-savvy consumers and an
innovation-embracing public sector.
These collaborations among various stakeholders are what we envision in platforms such as
Alibaba Cloud's sandbox program.
Together, let us continue the financial digitalization journey toward a resilient and inclusive future.
Thank you very much.