2018 saw the creation of a global sandbox – the Global Financial Innovation Network (GFIN) by the UK’s Financial Conduct Authority, in collaboration with 11 financial regulators and related organisations. The US Bureau of Consumer Protection and Singapore’s MAS are both members. GFIN can act as a network of regulators to collaborate, share experience and best practice and communicate to firms; it can provide a forum for joint policy work; and provide firms with an environment in which to trial cross-border solutions (business to consumer (B2C) or business to business (B2B)).
What is a Regulatory Sandbox?
- Regulatory sandboxes are run by financial services regulators
- Allow businesses to test innovative financial products, services, business models and delivery mechanisms in the real market, with real consumers
Who can apply?
- Dependent on each national regulator
- Successful applicants come from a variety of sectors, reflecting the increasing spectrum of FinTech
What is the criteria to take part?
- Must show innovation in either regulated business or one that supports regulated business of identifiable benefit to consumers
- Firms must have appropriate testing plans, including customer safeguards, in place
- Clearly defined exit and transition strategies from the sandbox
The list to date includes Australia, Canada-Ontario, Malaysia, Hong Kong, Switzerland, Dubai, Russia, Indonesia, Singapore, Taiwan, Thailand, UK and from end 2019 Norway and Spain – with more being added all the time.
The US has lagged behind the curve when it comes to regulatory sandboxes, but things appear to be changing. Arizona launched a sandbox earlier this year and there is now talk of creating a federal sandbox.
What are the main benefits?
– Usual rules waived, modified and/or their compliance facilitated (e.g. capital resources requirements)
– Engagement with regulator, the sharing of information, as well as individual guidance and informal steers
– Helps reduce the time and cost of getting new, innovative ideas to the market
– Boosts prospects of third party finance/investment
What happens afterwards?
- Duration of the sandbox varies but often lasts up to a year
- Where legal and regulatory requirements met, business propositions can be introduced to a wider market
Examples of Sandbox participants
- Consumer credit, automated advice and travel insurance businesses
- Firms testing distributed ledger technology e.g., to automate the issuance of debt or equity
- Other technology including geo-location technology, use of APIs and artificial intelligence
- Firms testing wholesale propositions
- Firms testing propositions relating to cryptoassets