The Use of Regulatory Sandboxes in Europe and Asia

Claus Christensen at Regulation Aisa: “Global attention to money-laundering, terrorism financing and financial criminal practices has grown exponentially in recent years. As criminals constantly come up with new tactics, global regulations in the financial world are evolving all the time to try and keep up. At the same time, end users’ expectations are putting companies at commercial risk if they are not prepared to deliver outstanding and digital-first customer experiences through innovative solutions.

Among the many initiatives introduced by global regulators to address these two seemingly contradictory needs, regulatory sandboxes – closed environments that allow live testing of innovations by tech companies under the regulator’s supervision – are by far one of the most popular. As the CEO of a fast-growing regtech company working across both Asia and Europe, I have identified a few differences in how the regulators across different jurisdictions are engaging with the industry in general, and regulatory sandboxes in particular.

Since the launch of ‘Project Innovate’ in 2014, the UK’s FCA (Financial Conduct Authority) has won recognition for the success of its sandbox, where fintech companies can test innovative products, services and business models in a live market environment, while ensuring that appropriate safeguards are in place through temporary authorisation. The FCA advises companies, whether fintech startups or established banks, on which existing regulations might apply to their cutting-edge products.

So far, the sandbox has helped more than 500 companies, with 40+ firms receiving regulatory authorisation. Project Innovate has helped the FCA’s reputation for supporting initiatives which boost competition within financial services, which was part of the regulator’s post-financial crisis agenda. The success of the initiative in fostering a fertile fintech environment is reflected by the growing number of UK-based challenger banks that are expanding their client bases across Europe. Following its success, the sandbox approach has gone global, with regulators around the world adopting a similar strategy for fintech innovation.

Across Europe, regulators are directly working with financial services providers and taking proactive measures to not only encourage the use of innovative technology in improving their systems, but also to boost adoption by others within the ecosystem…(More)”.