The regulatory fintech sandboxes: are they really useful?
Devie Mohan, Banking Tech’s columnist: how can regulators and fintechs work together?
This truly has been the time of regulators announcing fintech sandboxes – what better thing to write about on my first fintech column here, than the ways regulators and fintechs can work together!
There were three announcements in the past couple of weeks around regulatory sandboxes – the Australian Securities and Investment Commission (ASIC) announced the launch of a sandbox for fintechs to test ideas and have an easier journey through the licensing process. Singapore’s Monetary Authority (MAS) announced that their fintech sandbox idea is being opened up for public consultation. Abu Dhabi’s Financial Services Regulatory Authority (FSRA) also released a consultation paper specifically targeting robo-advisors and blockchain this week. I know personally of another regulatory body about to announce a fintech sandbox (so watch this space!).
Maybe it is just timing, but all these announcements coming so close together is an interesting development. Apart from UK’s FCA, there was no sandbox for fintechs focused on regulatory issues till now.
The licensing process so far for fintechs and challenger banks have been very ad hoc, some of them went through the process easily, like a couple of challenger banks who got their licence in under eight months, and some of them struggled with the process (and are still struggling). The biggest advantage of a sandbox will be that anyone applying for a licence will understand exactly what the process is before they attempt to launch. This will also give an opportunity to regulators to guide the fintechs through the process, enabling speed of launch.
Another big advantage is analysing impact. Ensuring the fintechs are not going to affect the safety and robustness of the financial services ecosystem, as envisaged by the regulatory bodies, is something that can add a lot of value to them.
Interestingly, the US has been lagging behind in setting up a regulatory conversation with fintechs. The US community banks have recently raised the issue with the Office of the Comptroller of the Currency (OCC) and clearly spelt out how the regulatory restrictions on them are affecting innovation while fintechs are clearly having limited constraints.
It is very clear that there is a lot of dialogue happening between regulators, fintech startups, banks and banking groups. All fintechs will need to be regulated in the future; and this seems to be the first step in that direction.
Being regulated and developing trust will also be integral to the fintech start-ups’ strategy – we can hope the sandboxes manage to achieve what they set out to do!
By Devie Mohan, a fintech market strategist, researcher, speaker and blogger
Devie’s fintech column for Banking Technology puts in the spotlight the latest, the most interesting and challenging subjects of this fast moving industry.
