Vol.15 Issue 2 (2019)

Regulators Nurturing Fintech Innovation: Global Evolution of the Regulatory Sandbox as Opportunity-Based Regulation

Deirdre Ahern

The regulatory sandbox is a real-world alternative to regulatory lag. Its emergence as a novel regulatory development responds to challenges faced by FinTech innovators in navigating an unwieldy regulatory landscape not designed with FinTech in mind. Regulatory sandboxes are in operation in developed countries including Australia, Canada, Denmark, Hong Kong, Singapore, Switzerland, the Netherlands, the United Arab Emirates, the United Kingdom, and the United States. Within the European Union they are seen in Denmark, Hungary, Lithuania, Poland and the Netherlands. The concept has also gained traction with regulators in developing countries such as India, Indonesia, Malaysia, Mauritius and Thailand. Not only is the regulatory sandbox an experimental space for firms testing innovative FinTech products and services, it is also a novel regulatory experiment for regulators. This article advances the available literature through focusing on the contradictions inherent in the role of the regulator in administering a regulatory sandbox. It characterises the regulatory sandbox as a form of agile, opportunity-based regulation, distinguished by a regulatory approach that is concerned with actively supporting innovators in nurturing cutting-edge innovation to benefit innovators, consumers, investors, and the wider economy. This is path-breaking regulatory territory. In its provision and design, a regulatory sandbox performs a crucial signalling function in relation to a given financial system’s receptivity to FinTech business. An economic, pro-innovation agenda is at work. Distinct policy questions are therefore raised regarding the legitimate role of public gatekeeper financial services regulators operating regulatory sandboxes. The role of a regulatory sandbox in nurturing and expanding competition suggests a public interest role in the interests of consumer choice, price and efficiency rather than simply on risk minimisation. However, pressure on regulators to produce sandbox successes and to compete with other sandboxes may influence the exercise of regulatory discretion and produce regulatory distortions that affect competition in FinTech markets.

Author

Associate Professor, Director of Law, Technologies and Society Research Group, Trinity College Dublin, Ireland. Email: dahern@tcd.ie. The author is a member of the European Commission’s Informal Company Law Expert Group (ICLEG); this paper does not form part of the work of ICLEG, nor do the views expressed in it purport to reflect the position of the European Commission. An earlier version of this paper was presented at the Addressing the Global Challenge of Responsive FinTech Regulation Symposium, Trinity College Dublin, 8 March 2019. The author thanks the symposium participants and the anonymous referees for their comments.