Regulating Fintech in the EU: the Case for a Guided Sandbox

Abstract

New financial technology holds the promise of innovation and competition, challenging established products and services and frequently improving market processes. However, regulation of these new services faces a double challenge: to keep pace with innovation and facilitate new market entries while at the same time understanding and managing the regulatory risks that are involved. At this stage, the existing EU regulatory framework is of little help: the bulk of the present body of financial regulation stems from a different time, with different regulatory problems in mind. EU regulation is also very slow to change and to adapt. Therefore, this paper proposes a regulatory “sandbox” – an experimentation space – as a step towards a regulatory environment where such new business models can thrive. A sandbox would allow market participants to test fintech services in the real market, with real consumers, but under the close scrutiny of the supervisor. The benefit of such an approach is that it fuels the development of new business practices and reduces the “time to market” cycle of financial innovation, while simultaneously safeguarding consumer protection. At the same time, a sandbox allows for mutual learning in a technical field which is sometimes poorly understood, both for firms and for the regulator. This would help to reduce the prevalent regulatory uncertainty for all market participants. In the particular EU legal framework with various layers of legal instruments, the implementation of such a sandbox is not straightforward. In this paper, we propose a “guided sandbox”, operated by the EU Member States, but with endorsement, support, and monitoring by EU institutions. This innovative approach would be somewhat uncharted territory for the EU, and thereby also contribute to the future development of EU financial market governance as a whole.

Urgency of financial technology (Fintech) laws in Indonesia

“…This chapter should regulate what providers of fintech services are obligated and not allowed to do. It should cover the subject of reporting, independent supervision, and other related topics (Miseviciute, 2018; Ringe and Ruof, 2020).…”

“…This chapter should establish provisions on regulatory sandbox as a testing mechanism used to assess the reliability of the business process, business model, financial instruments and the governance of fintech actors. A business plan about consumer protection, sustainable business and risk mitigation efforts should also be laid out in this chapter (Financial Stability Board, 2017; Leong, 2018; Ringe and Ruof, 2020).…”

Regulatory Response to the Rise of Fintech Credit in The Netherlands

“…The most frequently mentioned regulatory response to the rise of fintech is to set up a regulatory sandbox, which is a regulatory regime that allows market entrants to test and develop their business model without having to comply with the burdensome regulation imposed on incumbents (Ferrarini 2017;He et al 2017;Bromberg et al 2017;Zetzsche et al 2017;Magnuson 2018;De Koker et al 2019;World Bank 2020;Ringe and Ruof 2020;Ofir and Sadeh 2020). Ringe and Ruof (2020, p. 604), for example, unequivocably recommend a regulatory sandbox: "this paper proposes a regulatory "sandbox"-an experimentation space-as a step towards a regulatory environment where such new business models can thrive.…”

An Introduction: Legal Regulation of the Digital Economy and Digital Relations in the 21st Century

“…There are certainly cases where the right of consumers to obtain a contact lens prescription, recognition of digital signatures, a ban on the sale of digital products and services that violate state law, and regulation of wireless Internet services are involved. In this respect, the model adopted by the EU Member States to adequately address the digitisation of economic law as a phenomenon could well be the first step in the development of a legal framework for regulating the collaborative economy [8]. Various researchers deal with a number of different views of this phenomenon, for example in relation to the sharing economy, and attempts to regulate it could violate both international law and the European Convention on Human Rights.…”