Regulators launch global fintech sandbox

More than 20 regulators from countries including the UK, Canada, USA and Australia have opened applications for a global fintech “sandbox” following a trial last year.

Sandboxes allow fintechs and other innovators to test new products and services in a controlled environment under regulatory supervision.

The regulators have come together, alongside related organisations, as the Global Financial Innovation Network (GFIN). The group, which now has more than 60 member organisations, launched in January 2019 with the aim of boosting international co-operation around innovation.

The UK’s Financial Conduct Authority (FCA), which currently chairs GFIN, recently announced that applications are open for the first cohort of businesses to use the sandbox. This will enable firms to test “innovative financial products, services, business models or regulatory technology across more than one country or jurisdiction”.

Trial – but no tests – took place last year

The FCA, which launched a UK regulatory sandbox in 2016, proposed a global sandbox almost three years ago. A consultation, held in August 2018, highlighted that major emerging innovation trends within financial services – such as big data, artificial intelligence (AI) and blockchain-based solutions – are increasingly global, rather than domestic, in nature.

With GFIN subsequently formed, the new organisation launched a cross-border testing trial and published a “lessons learned” document in January this year. The report found that none of eight firms selected for cross-border trials actually began testing because they “did not develop a testing plan that satisfied each jurisdiction’s criteria”.

The document says that last year’s trial received a high number of applications from firms with “regtech” and cryptoasset-related business models. Among the “regtech” firms, several were considering how AI and machine-learning could help firms with anti-money laundering (AML)/know-your-customer (KYC) checks.

Conversely, it said, there was a “noticeable lack of applications from large or international firms”, which it says may have been due to the relatively short application window of one month or because “the value of taking part was not sufficiently clear”.

In response, GFIN has developed several tools and solutions, including: a single-entry application form; cross-border testing FAQs to help firms understand the process; and an extension of the application window to nine weeks allow firms more time to consider and prepare their applications. The deadline is 31 December 2020.

Regulators across five continents participating

Alongside the FCA, regulators involved in the cross-border initiative include: the Jersey Financial Services Commission and the Guernsey Financial Services Commission; and four organisations from Canada – the Alberta Securities Commission; Autorité des Marchés Financiers (Québec); British Columbia Securities Commission; and the Ontario Securities Commission.

The other regulators involved are: Abu Dhabi Global Market; Australian Securities & Investments Commission; Astana Financial Services Authority – Kazakhstan; Bank of Lithuania; Bermuda Monetary Authority; Capital Markets Authority of Kenya; Central Bank of Bahrain; Central Bank of United Arab Emirates; USA Consumer Financial Protection Bureau; Dubai Financial Services Authority; Taiwan’s Financial Services Commission; Hong Kong Insurance Authority; Hong Kong Monetary Authority; Hong Kong Securities and Futures Commission; Magyar Nemzeti Bank (Central Bank of Hungary); and the Monetary Authority of Singapore (MAS).

Sandboxes are increasing in number worldwide. One established example is MAS’s fintech regulatory sandbox, which launched in 2016 – the same year as the FCA’s. Last year, MAS’s ‘Sandbox Express’ was added.

Further examples include Abu Dhabi and Hong Kong, while Global Government Fintech recently reported that the International Financial Services Centres Authority in India is launching a sandbox. This is part of its effort to establish a fintech hub in Gujarat International Finance Tec-City – known as GIFT City – near Gandhinagar.

Last month the FCA opened the latest application process for its established (UK) sandbox, which has accepted six cohorts of businesses since it began. Alongside the City of London Corporation, the UK regulator is also developing a digital sandbox pilot, which aims to support earlier-stage innovation. Applications to apply to be part of the latest cohort in the main sandbox close on 31 December 2020.