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Bank of Thailand ‘enhanced’ regulatory sandbox focuses on programmable payments

Bank of Thailand: the Bangkok-based authority will be collaborating more closely with other financial regulators, such as the Securities and Exchange Commission, through the sandbox | Credit: Bank of Thailand

Bank of Thailand (BOT) has launched an ‘enhanced’ regulatory sandbox, with programmable payments as its first theme.

Regulatory sandboxes are (virtual) test-spaces to allow testing of products and services developed by private firms using innovative technology in a controlled environment.

The South-East Asian country’s central bank announced that the ‘enhanced’ version of its sandbox ‘expands the scope of the current regulatory sandbox framework to include financial innovations not yet authorised by the BOT’ but within a limited scope and timeframe.

Programmable payments are defined by the BOT as ‘automated transactions with predefined conditions for the payment of goods and services’. Inquiries and applications are being encouraged from financial service providers and other interested companies until 13 September. The new testing framework will also be considered for other themes or initiatives – separately to programmable payments – if deemed appropriate.

The Bangkok-headquartered authority will work more closely, through the sandbox, with the Securities and Exchange Commission, the Office of Insurance Commission and the Fiscal Policy Office – a department under the Ministry of Finance – ‘to evaluate the benefits and risks of financial innovations and to establish potential and suitable supervisory policies’.

RELATED ARTICLE Sandboxes could ‘amplify problems’: IMF analysis questions many test-spaces’ impact – a news story (11 September 2023) based on an International Monetary Fund (IMF) paper titled ‘Institutional Arrangements for Fintech Regulation: Supervisory Monitoring’

DLT, smart contracts or ‘similar’ tech

‘The BOT has a policy of responsible innovation, promoting the development of innovations in a manner that is accountable to the economic and financial system,’ the BOT states in its ‘enhanced regulatory sandbox framework’ announcement. ‘Therefore, the BOT has initiated a testing project for programmable payment[s]. This project will demonstrate the potential for applying technology to a wide variety of financial services, accompanied by appropriate risk management processes.’

A ‘Programmable Payment Testing Framework’ (EN-language) guide on the BOT website describes such payments as having ‘pre-defined automated transaction conditions, leveraging distributed-ledger technologies (DLT), smart contracts or similar technologies’.

The BOT has inevitably been co-ordinating with other financial regulators on matters where jurisdictional responsibilities intersect on projects tested in the BOT’s regulatory sandbox if there were relevant concerns. But the enhanced regulatory sandbox’s introduction marks a significant development in this area, as it sets forth clear guidelines for collaboration among these authorities.

The BOT itself has been experimenting with programmable payments, conducting a pilot project on programmable retail central bank digital currency (CBDC) during 2023. This project (summarised in a 12-page ‘Pilot Programme: Retail CBDC Conclusion Report’, published in March 2024), had a ‘flexible ledger solution choice’ (so, was not DLT dependent) and aimed to foster innovation by implementing use-cases developed during a ‘hackathon’. One such example involved using programmable features within a digital wallet to empower parents to set spending limits and categories for their children, promoting financial literacy.

The enhanced sandbox’s programmable payments theme is not CBDC-focused.