CBA fosters environment for for equal market conditions [COMMENTARY]

Rashad Orujov, the First Deputy Chairman of the Central Bank of Azerbaijan, remarked during the FinTech Summit in Baku that the implementation of more stringent regulations in Azerbaijan's financial sector sometimes makes it more challenging for new entrants to join the market.

He highlighted that fintech advancements are crucial for the global financial system, as they broaden the scope of operations for both startups and financial service providers. To facilitate this, the Central Bank has established a specialized regulatory framework aimed at testing innovative financial products within defined parameters and under the oversight of the Central Bank.

Orujov expressed that a primary objective of the CBA is to foster an environment where non-bank payment service providers and fintech companies receive fair treatment, aiming for equal market conditions. Regulatory bodies prioritize market stability and consumer protection when formulating the legal framework. The specialized regulatory framework enables banks and fintech firms to experiment with innovative products and services, not just in payments but across the entire financial sector. This setup is designed to mitigate risks and uphold the overall safety of the financial system.

Economist Ruslan Atakishiyev agreed with the statement of the First Deputy Chairman of the CBA.

“In 2015, following the devaluation that occurred in the country, the Central Bank implemented a strict financial regulation policy. There were objective reasons for this. Specifically, to enhance both the reliability and trustworthiness of the banking sector, as well as to strengthen the stability of the national currency. Consequently, the stringent measures resulted in increased challenges in the development of the financial market, particularly in the establishment of new financial institutions. I believe that in the future, financial policy should be softened to allow for both an increase in the variety of financial instruments in the market and for players to freely enter the market.”

According to him, the special regulatory regime emphasizes the importance of fostering the emergence of new fintech solutions and the introduction of new products in the market.

“Today, its effectiveness can be judged by the fact that several companies have already begun offering new fintech products. Moreover, these products have the opportunity to develop within the framework of the special regulatory regime, allowing them to mature like an incubator until they are truly market-ready, thus enabling their broad application. This is crucial not only for protecting the existing financial market from potential risks but also for ensuring that any emerging risks are mitigated. If we were to directly introduce any new product to the market without such regulation, it would increase market risks. However, the special regulatory regime preemptively mitigates these risks and enables the introduction of more refined, lower-risk products that are suitable for the real market.”

The other Azerbaijani economist, Parviz Heydarov, also agreed with the insights of economists.

“The implementation of a strict regime and policy in Azerbaijan's financial market naturally limits its expansion, and as noted by Rashad Orucov, the First Deputy Chairman of the Central Bank, it hinders the representation of new participants. Azerbaijan's financial market is at a stage of development that also causes some limitations in this market. The current situation about the non-oil sector's development could be another reason which affects the balance in the economy. Therefore, serious oversight is required in the financial market," he said.

Parviz Heydarov thinks that the closure of the financial market will not end until the non-oil and gas sector reaches the desired level in the development of the country's economy.

“In other words, the financial market will be completely liberalized and liberated at that time, which will happen as a result of the development of the non-oil and gas sector at the required level. The current situation is solely due to objective reasons. However, it is also necessary to think about the gradual liberalization of the market, i.e. the implementation of softening policy, and it is necessary to take certain steps in this direction. In other words, conditions should be gradually created for foreign participants and additional players to enter both the banking sector and our financial market in general,” he added.