Regulatory sandboxes are controlled ‘safe spaces’ set up by regulators, which allow Fintechs to test innovative products, services or business models without immediately being subject to all regulatory requirements.
As of today, the United Kingdom, The Netherlands and Denmark are the only European countries who have established a testing environment for Fintechs. However, with Austria being the next EU Member State to set up a regulatory sandbox in 2019 and the expectation that more countries are to follow in the near future, the risk arises that a fragmented ecosystem of differing national sandboxes will be created. This could not only mean regulatory arbitrage within the EU, but also lead to fairness issues as well.
In order to prevent the above-mentioned risks and foster cross-border scaling up of Fintechs, the European Fintech Alliance (EFA) calls for an EU-wide harmonisation in regulatory practices as well as supervisory criteria on nationally established sandboxes. If implemented properly, an EU-wide approach could benefit consumers by making a significant contribution to financial services innovation – while ensuring consumer protection – and would inevitably contribute to the long-term competitiveness of the European Fintech sector. Therefore, EFA calls for the establishment of the following measures in an EU-wide approach to national sandboxes:
- Clear and consistent criteria must be defined for projects which are to enter the sandbox.
- A simple and transparent authorisation process is to be implemented, which includes waivers to amendments to particular rules, if test activities would otherwise breach them.
- A clear supervision process must be ensured for the duration of the testing.
- Regulatory learnings must be shared publicly with both industry and regulators in other jurisdictions.
- The identification of innovation inhibiting EU regulations and their revision must be defined as the primary goal of the approach. Furthermore, all measures are to be in line with this overarching objective.
If the above-mentioned measures are implemented properly, the European Union makes an important step towards becoming a global hotbed for financial innovation. Only a cooperative approach to regulation, including supervisory authorities and the industry, allows the EU’ Fintech sector to fully unleash its innovative potential.
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