Regulators Nurturing FinTech Innovation: Global Evolution of The Regulatory Sandbox as Opportunity-Based Regulation

Abstract

The emergence of the regulatory sandbox as a novel regulatory development in both developed and developing countries responds to the challenges faced by FinTech innovators in navigating an unwieldy regulatory landscape not designed with FinTech in mind. This article 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 with a view to delivering benefits for innovators, consumers, investors, and ultimately the wider economy. 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, allowing them to actively learn and about new technologies and regulation needs to adapt and respond. In its provision and design, the regulatory sandbox phenomenon performs a crucial positioning function in relation to a given financial system’s receptivity to FinTech business. 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. However, pressure on regulators to produce sandbox successes may influence the exercise of regulatory discretion and produce regulatory distortions.