FinTech Policy of the Year: National Bank of Georgia

At only two years old, the National Bank of Georgia’s (NBG’s) fintech unit is relatively new, but the central bank’s approach to new technology has meant the deployment of fintech internally and across the financial market has been rapid.

In addition to exploring new methods of instant payment, central bank digital currencies and open banking frameworks, one of the NBG’s founding fintech policies has been its ‘open regulatory approach’, built on the idea that regulation should be adaptive and market participants should be actively involved in new regulatory developments.

“We believe companies that do not invest in technology and do not welcome fintech developments will not survive,” says Papuna Lezhava, deputy governor of the NBG.

The team running the NBG’s fintech office is made up of existing staff from the central bank’s supervisory department. The NBG has also onboarded new talent to provide a fresh perspective on how policy should be shaped.

Georgia has a nascent fintech market, and has quickly become a technology hub, and has emerged as one of the leaders in contactless payments. To help fintech firms navigate the market in terms of supervision, the NBG established its financial innovation office in 2019.

“The office provides free consulting to start-ups and tech firms to help them enter the market,” explains Otar Gorgodze, head of the NBG’s financial and supervisory technologies development department. The office provides regular updates to firms about changes in regulation and also identifies what type of licence might be suitable for new business models.

Supporting the innovation office’s goals is the NBG’s digital banking licence framework, which was launched in the second half of 2020. The central bank was cognisant of barriers for some financial companies looking to enter the market on a purely digital basis.

As a compromise, the digital banking licence lowers entry barriers – in the form of lower capital requirements – for business models that are currently lacking in the market.

“Initially these firms will adhere to lower capital requirements, but they will be scaled up to commercial bank level over time,” explains Gorgodze. “The same goes for liquidity and other regulatory requirements.”

The central bank is also helping to ensure fintech developments are deployed safely within the market. The RegLab is the NBG’s equivalent to a regulatory sandbox and was deployed last year amid the Covid-19 pandemic. It has three components: concept testing, model testing and real-time testing.

“We originally did not want to deploy the sandbox last year, but there was a need for financial institutions to provide services to consumers online much more efficiently,” explains Gorgodze. “During the pandemic, the sandbox really did help to rapidly deploy new remote onboarding technologies.”

Currently, applications to the RegLab are limited to regulated firms. However, work is underway to extend applications to activities that could be at or beyond the current regulatory perimeter. For example, preparations are under way for the RegLab to be used to develop sustainable crowdfunding and peer-to-peer regulatory models, as well as CBDC technology developers and operators.