NASSAU, Bahamas, CMC—The Central Bank of The Bahamas (CBB) is evaluating the feasibility of creating a regulatory sandbox to support entities that wish to introduce innovative fintech products, services, delivery channels, and technology platforms to potential customers and investors.
The CBB has released a consultation paper as it embarks upon a 30-day consultation period ending August 31.
The concept of regulatory sandboxes was introduced nearly a decade ago by the United Kingdom’s Financial Conduct Authority to allow fintech companies a controlled testing environment for new products with limited customers.
In January, Central Bank Governor John Rolle said the CBB is exploring how such frameworks could support the introduction of nascent financial technologies.
He said then, “This is important in the context of how to enable faster access to digital payment platforms and how The Bahamas ultimately enables regulated but more open access to digital banking platforms.”
The CBB anticipates that the Sandbox will enhance its supervisory capacity to accommodate financial technology innovators and service providers seeking to introduce innovative products, services, delivery channels, and technology platforms to potential customers.
It said the Sandbox would allow participants to test innovative solutions in a controlled environment under regulatory guidance, ensuring consumer protection and financial stability.
”The consultation paper outlines the proposed structure of the Sandbox framework and identifies challenges and considerations given the current regulatory environment. The paper also addresses the eligibility criteria for applicants seeking to participate in the Sandbox and the stages of the regulatory sandbox lifecycle for approved applicants,” the CBB added.
Meanwhile, Rolle said this week that based on the latest data through the first half of 2024, the Bahamian economy continued to expand at a healthy pace.
“Although the speed of growth has moderated since the recovery from the pandemic was completed, activity remained slightly accelerated in comparison to the economy’s expected medium-term potential.
“This reflects strong tourism gains, including in the most important stopover segment, and sustained foreign investment inflows–still significantly targeting tourism developments and residential real estate,” Rolle said, adding that the government’s improved revenue position also benefited from these trends.
He said the outcome remained positive for employment, including through construction activities. In the meantime, the inflation rate further subsided as the pass-through from higher prices on imported goods and services receded. In addition, monetary and credit trends reflected additional improvement in credit quality and modest firming in lending to the private sector.
Rolle said that in addition to tourism, indications are that earnings maintained a healthy growth pattern. In the high-yielding stopover segment, the data on air arrivals, departure trends through Nassau International Airport, and vacation rental activity all point to improvements through May and June of 2024.
He said air arrivals strengthened year-to-date but, as expected, significantly moderated from their 2023 pace, which still featured a very strong recovery component. In the vacation rental segment, performance gains were reflected in increased room night sales and an expanded inventory of available rental listings throughout The Bahamas.
Rolle said that the foreign exchange market indicators underscore that even with the post-recovery moderation in the speed of economic growth, the net retention of foreign currency in the external reserves was more excellent.
He said inflow moderation was evident from a more constrained increase in commercial banks’ purchases of foreign currency from the private sector of 2.2 percent during the first half of 2024, compared to a rise of 3.5 percent in 2023.
However, demand for foreign exchange, as seen in commercial banks’ sales, fell by 2.6 percent over this period, given moderated outlays for oil imports and reduced outflows on credit cards and related transactions.
Rolle said that as a result, the commercial banks’ net sale of foreign exchange to the Central Bank was over 50 percent greater than in 2023, at just over US$400 million through June 2024. The government sector was also a net contributor to the reserves buildup of more than US$150 million in this period, in contrast to a net usage of external balances of over US$200 million in 2023.
The CBB governor said that the post-pandemic highs are still tempering the pace of future economic growth.
“However, the 2024 expansion is expected to retain some above-average momentum due to aggressive tourism marketing campaigns and residual pent-up demand for travel.
“The Bahamas also retains upside potential from ongoing investments to increase cruise destination capacity and stopover accommodations that are still anticipated to be restored in parts of the country.”
Rolle said that over the medium term, such outcomes are expected to provide steady benefits for employment and further improve public finance trends.
“Some risks to the economic outlook have subsided. Although inflation is still decreasing towards its target range in most major economies, inflation is under control, positioning major central banks to reduce interest rates further from their recent highs.
“Despite ongoing uncertainty about when this process will fully conclude, the overhang from higher interest rates is already subsiding. In addition, there is less of a risk of a short-term reduction in output, or correction of the magnitudes that could seriously hinder tourism demand, or frustrate the ease of funding foreign investment flows.”