regulatory sandbox – Page 2 – FinTech and Blockchain Law Watch

FCA outlines FinTech and RegTech priorities for year ahead

Apr 20 2017

The UK Financial Conduct Authority (FCA) recently issued its Business Plan 2017/18 that deals with its FinTech and RegTech priorities for the year ahead. The FCA wants to engage more with regional and Scottish FinTech hubs. In its risk outlook, the FCA talks about more complex value chains that utilise FinTech posing a risk to consumer protection and market integrity. The issues associated with the oversight and controls of increasingly complex chains of third party relationships are reflected in the FCA’s priorities. The technological resilience of incumbent firms will also continue to be an area of focus because of the risk of disruption to financial markets. The FCA states that FinTech firms may not fully understand the scope of regulation and its impact on their business model. This could lead to cases of non-compliance with FCA rules, which could pose risks to consumer protection and market integrity. In addition, the FCA fears that greater reliance on technology poses increased operational risk, and risks to market integrity. The FCA believes that FinTech business models shift risk from financial firms to consumers without consumers fully understanding the implications or having adequate safeguards.

FCA discussion paper on distributed ledger technology

Apr 13 2017

By Jacob Ghanty

The FCA has published a discussion paper (DP) on the potential uses of distributed ledger technology (DLT) in financial services. The purpose of the DP is to start a dialogue on the risks and opportunities in relation to DLT. The FCA has gained exposure to DLT through its Regulatory Sandbox initiative.

The FCA describes DLT as “a set of technological solutions that enables a single, sequenced, standardised and cryptographically-secured record of activity to be safely distributed to, and acted upon by, a network of varied participants.” It states that industry efforts to investigate DLT have become especially concentrated over the past 24 months and, in the second half of 2017 into 2018, it expects to see firms moving on from “Proof of Concept” to “real-world” deployment of this kind of technology.

Dubai Innovation Testing Licence

Mar 09 2017

By Jonathan Lawrence

The Dubai Financial Services Authority (DFSA) published a new FinTech consultation paper on 6 March 2017 entitled “Testing FinTech Innovations in the Dubai International Financial Centre (DIFC)”. The paper is the third in a series, setting out the DFSA’s approach to FinTech regulation.

The DFSA had previously determined that the current regime for regulating firms in the DIFC was flexible enough to accommodate many aspects of FinTech without introducing new rules. The latest consultation sets out the DFSA’s approach to FinTech firms that want to test innovative products and services in the DIFC. Firms meeting the qualifying criteria will receive a Financial Services Licence, referred to as an Innovation Testing Licence, which reflects the nature of the activities to be conducted during the testing phase. The DFSA will put in place limits on the FinTech testing activities to ensure appropriate controls for the safety of any customers involved. Given the limits on activities permitted during testing, FinTech firms will not have to comply with DFSA Rules where they are inappropriate at a testing stage. The testing phase is a step towards the FinTech firm obtaining a full Financial Services Licence.

The U.S. Wants a Sandbox Too

Nov 03 2016

By C. Todd Gibson and Tyler Kirk

On September 22, 2016, Republican Congressman Patrick McHenry from North Carolina announced the introduction of H.R. 6118, the Financial Services Innovation Act of 2016 (the “Bill”). McHenry is the chief deputy whip and vice chairman of the House Financial Services Committee. According to the press release, the bill was introduced as part of the “Innovation Initiative” that McHenry co-launched earlier this year with House Majority Leader Kevin McCarthy, a fellow Republican from California. On October 19, 2016, the Bill was referred to the Subcommittee on Commodity Exchanges, Energy, and Credit. Before the Bill becomes law in the United States, it must be past by both chambers of Congress and signed by the President. With this Bill, America joins, among others, the United Kingdom, Hong Kong, and Malaysia in establishing FinTech regulatory sandboxes.

In its current form, the Bill takes a two-prong approach to constructing a regulatory sandbox. First, it creates a government-wide FinTech oversight regime, and second, it codifies an exclusive no-action relief mechanism for financial innovators. Under the first prong, the Bill requires federal regulators to adopt a mandate to encourage innovation in the financial industry through the creation of Financial Services Innovation Offices (“FSIOs”). Further, the Bill provides for the establishment of the FSIO Liaison Committee (“Committee”) comprised of the directors of each agency’s FSIO. The purpose of the Committee is to coordinate the regulation of companies seeking to bring new and innovative financial technologies to market (“Covered Persons”). Under the second prong, Covered Persons may petition regulators for an alternative compliance plan under an “enforceable compliance agreement,” that will provide the conditions under which the Covered Person may implement their financial innovation (including any regulatory waivers).

More regulatory sandboxes

Oct 26 2016

By Jim Bulling and Michelle Chasser

Bank Negara Malaysia (BNM) has released details of the framework for Malaysia’s regulatory sandbox. The finalisation of the framework follows a consultation which began in July.

Under the sandbox framework BNM may consider granting regulatory exemptions to applicants for the purpose of testing an innovative product, service or solution for a period of up to 12 months.

Applicants wishing to apply for the sandbox should have innovations which are ready for testing and have the potential to:

improve the accessibility, efficiency, security and quality of financial services;
enhance the efficiency and effectiveness of Malaysian financial institutions’ management of risks; or
address gaps in or open up new opportunities for financing or investments in the Malaysian economy.

The Sandbox is getting crowded

Sep 29 2016

By Jonathan Lawrence

In a recent speech delivered at the British Bankers’ Association FinTech Banking Conference, Christopher Woolard, the Director of Strategy and Competition at the UK Financial Conduct Authority spoke about the high level of interest in the FCA’s Regulatory Sandbox for FinTech ventures. The Sandbox aims to create a ‘safe space’ in which FinTech businesses can test innovative products, services, business models and delivery mechanisms in a live environment without immediately incurring all the normal regulatory consequences of engaging in the activity.

Of 69 applications to join the Sandbox, the FCA has accepted 24 to develop towards testing. The FCA’s team has been expanded to meet demand. 40 of the unsuccessful first time applicants will be offered assistance via Project Innovate or other FCA staff, in some cases to prepare for the next cohort of the Sandbox.

HKMA’s support to fintech development in Hong Kong

Sep 09 2016

By Michael P. W. Wong

The Hong Kong Monetary Authority (HKMA), announced on 6 September 2016, the launch of Fintech Innovation Hub (FIH) and the Fintech Supervisory Sandbox (FSS).

The FIH will be jointly established by the HKMA and the Hong Kong Applied Science and Technology Research Institute for the purposes of supporting and promoting the research and development of fintech by the local financial services industry. The FIH will be equipped with all the requisite IT systems and supported by technical teams, enabling industry players to pioneer or build upon new fintech solutions, such as enhanced biometric authentication and integrated mobile payment services. In addition, operation of the FIH is expected to facilitate dialogue between the HKMA and the relevant industry players on emerging technologies by serving as a common training venue. For instance, the HKMA may wish to explore “regtech” solutions to improve its regulatory efficiency in the FIH.

Strong response to ASIC sandbox proposal

Aug 12 2016

By Jim Bulling and Michelle Chasser

ASIC’s regulatory sandbox consultation has drawn a mixed response from around 30 businesses, industry and consumer groups which have made submissions. To refresh your memory about ASIC’s proposals check out our previous blog.

Tyro Payments was very supportive of the concept of a sandbox but had a few concerns about the proposed structure. Tyro’s main concern was the role of sponsors controlling start-ups’ access to the sandbox. It noted that Australia’s associations, hubs and accelerators were dependent on funding from industry incumbents and that exposing the sandbox to their influence is like “putting the fox in charge of the hen house”. Tyro was in favour of a UK style sandbox where applicants’ transitions into licensing are considered on a case by case basis by the regulator.

Monetary Authority of Singapore – Consultation on regulatory sandbox for FinTech solutions

Jun 23 2016

By Nicholas Hanna and Penelope Davey

In a move that is targeted at promoting Singapore as a leading FinTech hub in Asia-Pacific, the Monetary Authority of Singapore (MAS), the regulatory authority overseeing financial matters in Singapore, issued a consultation paper on 6 June 2016 which outlined a proposal for a “regulatory sandbox” for FinTech solutions.

The proposal will permit financial institutions and other entities to experiment with new FinTech solutions in an environment of relaxed regulation whilst maintaining appropriate safeguards. It is hoped that this proposed relaxed regulatory environment will allow such solutions to take root without being impeded by regulatory compliance costs and will improve the viability of innovations in the FinTech sector.

Regulatory sandbox and innovative regulation

Jun 09 2016

By Daniel Knight

Australian FinTechs are closer to getting a regulatory “sandbox” after the Australian Securities and Investments Commission (ASIC) released its detailed consultation paper this week. The paper details proposals for a testing ground for innovative robo-advice providers and other similar services. It also highlights ASIC’s views about some regulatory options already open to FinTechs under the current law, as we discussed in a previous post.

In a sign of ASIC’s engagement with this nascent sector, ASIC launched its proposals at a fintech startup founders event in Melbourne. ASIC emphasised it is seeking industry feedback and is open to making changes.

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