Government-Powered FinTech Sandboxes Launched to Create Safe Environments to Take Risks

Witnessing the outstanding success and growth of global FinTech ecosystems, a growing number of governments are deciding to take actions to foster innovation and create welcoming national environments for startups to grow and bring the latest technological advancements into countries. FinTech sandboxes are being launched by governmental structures steadily and are looking for innovators to take risks in safe and welcoming environments.

FinTech Sandbox by Abu Dhabi Global Market (ADGM)

One of the most recent initiatives was launched by The Financial Services Regulatory Authority (FSRA), one of three divisions of the Abu Dhabi Global Market (ADGM). Abu Dhabi Global Market is a broad-based international financial center for local, regional and international institutions.

Almost a month ago, ADGM released a consultation paper to invite public feedback and comments on the proposal to establish a regulatory framework to support participants deploying innovative technology within the financial services sector.

With the goal to build a conducive FinTech environment in Abu Dhabi and the ADGM, and position the ADGM as the FinTech innovation hub in the GCC region, FSRA has worked closely with local and international stakeholders in order to develop innovative products, services and solutions to enhance the efficiency of our financial markets and systems, thereby improving consumer choice and experience.

The initiative also aims to promote growth opportunities in Abu Dhabi’s and ADGM’s financial ecosystem and anchor FinTech knowledge and expertise in local banks and financial institutions to capitalize on emerging trends and manage risks.

In order to bring innovation to the country and region, FSRA has proposed to create a Regulatory Laboratory (RegLab) – a tailored framework that provides a safe environment, within controlled boundaries, for businesses to test, develop and provide innovative FinTech products and services without immediately being subject to all the normal regulatory requirements.

A range of extremely attractive features are proposed to power the initiative along with the opportunity for FinTech startups to enjoy a two-year period to develop, test and launch their products and services in a controlled environment, after which FinTech participants with viable business models will be transferred to the full authorization and supervisory regime upon successful demonstration of compliance with the authorization criteria.

FinTech Regulatory Sandbox by the Monetary Authority of Singapore

A couple of days ago, the Monetary Authority of Singapore released a consultation paper on the FinTech Regulatory Sandbox Guidelines explaining the importance of building and growing a smart financial center with a regulatory environment that is conducive to the innovative and safe use of technology.

The regulatory sandbox will enable financial institutions (FIs) as well as non-financial players to experiment with FinTech solutions in the production environment but within a well-defined space and duration.

Ms. Jacqueline Loh, Deputy Managing Director of MAS, commented in the press release, MAS aims to provide a responsive and forward-looking regulatory approach that will enable promising FinTech innovations to develop and flourish. The sandbox will help reduce regulatory friction and provide a safer environment for FinTech experiments. We believe this will give innovations a better chance to take root.

For the duration of the regulatory sandbox, MAS will relax specific regulatory requirements which an applicant would otherwise be subject to.

Recognizing that failure is a healthy part of experimentation, MAS believes that the purpose of the regulatory sandbox is to provide appropriate safeguards to contain the consequences of failure for customers rather than to prevent failure altogether.

Solutions are proposed to be assessed in the regulatory sandbox on criteria such as the extent of innovativeness of the FinTech solution, whether the applicant has the intention and ability to deploy the solution in Singapore on a broader scale as well as whether the solution brings benefits to consumers and/or the industry.

‘Regulatory sandbox’ by the Australian Securities and Investments Commission

In March, the Australian Securities and Investments Commission released an announcement that in collaboration with the government, ASIC will be working on the development of a ‘regulatory sandbox’ for Australian FinTech.

As Hon Scott Morrison, Treasurer of the Commonwealth of Australia, commented, As Treasurer I want to help create an environment for Australia’s FinTech sector where it can be both internationally competitive and play a central role in aiding the positive transformation of our economy.

The government aims to develop a world-leading ‘regulatory sandbox’ in Australia that will enable companies to manage regulatory risks during testing stages, reducing the cost and time to market products.

The Turnbull Government wants to offer home‑grown and offshore FinTech innovators an opportunity to develop and refine new products and services in the Australian market through a regulatory system that allows them to be frictionless through their scale journey while still becoming regulatory match fit for deployment into domestic and global markets, stated on the official website of ASIC.

The government will allocate $200,000 for promoting the country internationally as a FinTech destination and to highlight the commercial opportunities of the world’s best regulatory sandbox where innovators can test and refine their ideas.

The regulatory sandbox will allow startups to test their ideas for up to six months with a limited number of retail clients subject to prescribed investment thresholds and restrictions on the types of services eligible for testing. ASIC will consult on how to maintain consumer protections while still allowing innovators to test their ideas and business models.

FinTech Sandbox by the Financial Conduct Authority in the UK

In May, the Financial Conduct Authority opened its regulatory sandbox for applications. The regulatory sandbox is part of Project Innovate, an initiative that kicked off in October 2014, to help us encourage innovation in the interests of consumers and promote competition through disruptive innovation.

The eligible applicants will be offered a tailored authorization process (restricted authorization) in the testing phase; individual guidance for firms testing ideas that do not easily fit into the existing regulatory framework and in some cases, waivers or no enforcement action letters.

Tracey McDermott, Acting Chief Executive at the FCA, commented in the announcement, Supporting innovation is an essential part of our role in promoting competition in the interests of consumers. Our aspiration is that the sandbox not only enables innovative ideas to be tested and brought to market but also helps to reduce the time and the cost of getting them there.

With the regulatory sandbox, the authority aims to create a ‘safe space’ in which businesses can test innovative products, services, business models and delivery mechanisms in a live environment without immediately incurring all the normal regulatory consequences of engaging in the activity in question.