Regulatory Sandbox :What are the benefits for regulators, supervisors and customers?

This post is the third of a series dedicated to the Regulatory Sandbox. Its importance lies in the recent approval of the Draft Bill for Digital Transformation of the Financial System by the Spanish Council of Ministers on 18 February 2020. Our knowledge of Innovative business models, and its regulation is key to deliver an end-to-end service to our clients. In this post we will talk about Regulatory Sandbox :What are the benefits for regulators, supervisors and customers? 

Regulatory Sandbox:Government Regulators

Regulatory update

By supporting innovative firms get regulatory certainty, it allows Government Regulators to identify and appropriately intervene to address barriers to entry and areas of regulatory uncertainty more broadly through issuing guidance and engaging with the FinTech ecosystem to support and encourage innovation.

Regulatory Anticipation

The fact that the regulator is in constant contact with the latest innovation can help to anticipate regulations or new supervision that allows to anticipate new existing business models by accelerating innovation or limiting risks for users.

Regulatory Sandbox: Competitive advantage

It has been shown that those countries with Regulatory Sandbox tend to attract more companies, talent and investment because they support innovative business models that can be part of a safe environment.

Sandbox: Supervisory Authorities

Identification of innovation and supervisory anticipation

It is a great opportunity for supervisors to be able to analyze what business models and how new technologies are being used across the cohorts of Sandbox. It leads to the identification and improvement of supervisory issues, which otherwise would not have been known.

Closeness to industry

One of the great needs to accelerate innovation is to create a work environment to identify areas of regulatory uncertainty and deliver appropriate and considered policy in response. This only can be achieved working together, startups, incumbents and government authorities.

Control of financial sustainability and risk minimization

It is an optimal way for supervisors to have the latest innovations close to develop mutual learning on the risks and opportunities of applying new technologies to new business models. Furthermore, it may encourage firms to go on to exhibit more positive regulatory behaviors, increasing transparency with the government, treating customers fairly, and so on.

Inter-supervisory dialogue

A environment is created where the three supervisors (Bank of Spain, National Securities Market Commission and Directorate General of Insurance and Pension Funds) and other agents (Spanish Data Protection Agency, SEPBLAC…) are able to work together on innovative projects that may affect different areas.

Internal digital transformation

Supervisory Authorities will have the need to scale over time the innovation departments by promoting internal .RegTech and SupTech initiatives for the digitalization of current supervisory processes.

Sandbox: Customers and users

Security

The main goal Sandbox is seeking for, is to protect customers and users. The implementation of the business models in the Regulatory Sandbox will be limited in customers, assets, transactions and investments. For this reason, it’s the perfect environment to develop innovation by minimizing risks.

Increased competition

By initially allowing limited and proportional compliance regulation for the most innovative projects, entry barriers to activities get lower, favouring increased competition. This undoubtedly results in the improvement of the products and services made available to the final consumer. The Sandbox would facilitate the entry of new companies into the market, all to the benefit of the end customer. For instance, with more and better products and services, lower prices or technological innovation.

Cost reduction

Sandboxes are ultimately accelerated processes for the implementation of innovation, making the time to market of innovative products and services of technological firms less than through the traditional channels not designed for it.

Sandbox: Social sustainability

Impact on Social Sustainability

The United Nations launched the 17 sustainable development goals until 2030, where Technology companies will have a very important weight. For this reason, Sandboxes enhance financial inclusion, both unbanked and underbanked, as well as the democratization of many products and services that are currently not accessible to the most excluded population. There are cases in which FinTech, due to their digital models in «legacy» can offer products or services that are barely profitable, but with a great impact on the social sustainability of the country.

• SANDBOX: WHAT IT IS, WHEN IT STARTED, WHERE WE ARE, AND WHAT THE NEXT STEPS ARE
• REGULATORY SANDBOX WHAT ARE THE BENEFITS FOR STARTUPS, FINANCIAL COMPANIES OR INVESTORS?