“Sandbox” is one of the most common words in the fintech universe. In the financial industry, the term refers to a mechanism for developing regulation that keeps up with the fast pace of innovation.
The word sandbox originally referred to the small box filled with sand where children play and experiment in a controlled environment. But little by little, the term has acquired new meanings. In the computer science world, a sandbox is a closed testing environment designed for experimenting safely with web or software projects.
The concept is also being used in the digital economy arena, to refer to regulatory sandboxes: testing grounds for new business models that are not protected by current regulation, or supervised by regulatory institutions.
These testing grounds are especially relevant in the fintech world, where there is a growing need to develop regulatory frameworks for emerging business models. The purpose of the sandbox is to adapt compliance with strict financial regulations to the growth and pace of the most innovative companies, in a way that doesn’t smother the fintech sector with rules, but also doesn’t diminish consumer protection.
The United Kingdom is one of the places where the institutional commitment to fintech is very strong, with London attempting to become the global capital of financial disruption. Two years ago, at the end of 2015, the Financial Conduct Authority (FCA) – the British market regulator – published a report as part of its Project Innovate, where it explained why a regulatory sandbox was needed.
The project was implemented in mid-2016. Fintech companies from around the world presented applications to continue growing and complying with the strict financial regulations, working alongside the FCA. Meanwhile, the FCA’s aim is to create incentives for competition so that consumers have more and better alternatives to manage their money.
The first edition of the British regulatory sandbox began in early 2017. One of the startups selected to participate was Bud, which explained its experience at an event organized by BBVA Bancomer and the Inter-American Development Bank. In June, the FCA announced that a second group of selected companies was ready to start the second round of sandbox testing, and they were even accepting applications for the third round.
The United Kingdom is not the only country to see sandboxes as a way for fintech companies to grow. There are already nearly 20 underway around the world, at various stages of development. Apart from the British efforts, advances in Asian markets like Hong Kong and Singapore also stand out.
And Spain? Spain is in line with continental Europe, which lags a bit behind, although there are exceptions like the Netherlands But progress is starting to be made. Conscious of the fact that the worlds of technological innovation and regulation – which move at different speeds – should work together so that citizens have access to better financial services, the Spanish Fintech Association, the Treasury and the CNMV are working to develop a regulatory sandbox.
In early summer, BBVA took part in a public consultation by the European Commission to promote the definitive rollout of new fintech services in the European Union. As part of the consultation, BBVA suggested the creation of European regulatory sandboxes to avoid discrepancies among the different countries and facilitate transnational projects. They also proposed that European Supervisory Authorities (ESAs) be the ones to coordinate the local activities in each country and that the ECB manage a sandbox for cross-border banking projects.
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