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Briefing paper

Fintech sandboxes: promoting innovation, encouraging competition

Policy spotlight
Publisher
Competition regulation Business innovation Financial services industry Sector regulation United States of America
Description

Innovation and competition in lending helps improve access to credit, especially for borrowers poorly served by the traditional market. However, regulatory burdens and uncertainty in the financial sector can cost companies money and make them risk averse. For innovators, regulators, and consumers, fintech (financial technology) “sandboxes” can potentially offer a win-win-win solution.

Sandboxes provide an experimental environment for companies to test new products or services in a laxer regulatory environment—and to pass the benefits on to the consumer. This can be extremely valuable in financial services, given the high levels of regulation and high barriers to entry. Furthermore, sandboxes offer regulators an opportunity to get a better understanding of where markets are going, rather than forcing regulators to play catch-up when something breaks down.

Requirements for regulatory sandboxes can vary, but they generally share these features:

  • They are temporary
  • They are for a limited number of consumers
  • They contain provisions for consumer protection and compensation
  • Sandbox participants are required to share information with regulators regarding their operations
Publication Details
Access Rights Type:
open