The role of regulatory sandboxes in the development of innovations on the financial services market: the case of the United Kingdom

Agnieszka Butor-Keler, Michał Polasik

DOI: http://dx.doi.org/10.12775/EiP.2020.041

Abstract


Motivation: The dynamic development of innovation in the financial market and the process of globalisation were at the heart of creating a new financial technology sector, called FinTech. In order to allow for a safe and intensive development of innovations and create opportunities for all entities, including start-ups, state supervisors and regulators create dedicated market environments — regulatory sandboxes.

Aim: (1) to define the concept of a regulatory sandbox; (2) to identify the forms of support for innovative solutions in the financial market; (3) to identify the outcomes of a regulatory sandbox in the case of the United Kingdom.

Results: Regulatory sandboxes are a new supervisory tool which, despite only a few years of history, has gained recognition of financial market participants. Research has shown that a regulatory sandbox has many benefits not only for the companies joining it but also for the supervisory institution. Sandboxes allow participants to receive continuous substantive support, obtain licences faster and resolve legal doubts. Participation in a regulatory sandbox is also a form of promotion and facilitates raising investment capital. On the other hand, regulatory sandboxes are still in the early stages of development, and the support they provide is limited. Some companies also experience problems in dealing with the long and complicated process of applying for admission and the limited number of participants. The latter obstacle may result in unequal competition on the market and failure to fully exploit the development potential of FinTech. The most important benefit for a supervisor is that through its engagement in a regulatory sandbox, it gains additional knowledge of new technologies and new business models, and its employees develop important competences. The dialogue conducted with professional financial market participants allows for a better assessment of the risks associated with new technologies. The first outcomes of participation in a regulatory sandbox are encouraging for new innovative players and supervisory authorities. It is recommended that this initiative be extended in order to enable more market players to conduct testing.


Keywords


regulatory sandbox; FinTech; financial market; innovation

Full Text:

PDF

References


Venture Capital Fund. (2020). Asset vault. Retrieved 17.05.2020 from https://1818venturecapital.com.

Alt, R., Beck, R., & Smits, M.T. (2018). FinTech and the transformation of the financial industry. Electronic Markets, 28(3). doi:10.1007/s12525-018-0310-9.

BFG. (2019). Zasady gwarantowania depozytów. Retrieved 20.02.2020 from https://www.bfg.pl.

Billon. (2019). Billon uzyskał pierwszą w Polsce licencję pieniądza elektronicznego. Retrieved 20.06.2020 from https://billongroup.com.

Blink. (2020). Retrieved 25.02.2020 from https://blinkblink.io.

British Heart Foundation. (2020). Retrieved 21.06.2020 from https://www.bhf.org.uk.

Bunea, S., Kogan, B., & Stolin, D. (2016). Bank vs. Fintech: at last, it’s official. Journal of Financial Transformation, 44

Buzzacott. (2020). Billon graduates from the sandbox with flying colours. Retrieved 19.05.2020 from https://www.buzzacott.co.uk.

Calvo, A., & Howell, J.L.L. (2020). Spain approves the legislative proposal that implements a regulatory sandbox. Retrieved 24.02.2020 from https://www.lexology.com.

CFPB. (2012). CFPB launches project catalyst to spur consumer-friendly innovation. Retrieved 22.02.2020 from https://www.consumerfinance.gov.

Chundi, V. (2018). UK FCA regulatory sandbox: lessons learnt and application tips. Retrieved 17.05.2020 from https://medium.com.

Chynge. (2020). Retrieved 25.02.2020 from https://chynge.com.

Clifford Chance. (2019). Global financial innovation network launched: hopes to boost Fintech growth. Retrieved 17.02.2020 from https://talkingtech.cliffordchance.com.

Columbia Institute for Tele-Information. (2020). Retrieved 23.02.2020 from https://dfsobservatory.com.

CommonBond. (2020). Retrieved 18.02.2020 from https://www.commonbond.co.

Dashly. (2020). Testing, testing, testing: Dashly accepted into the 4th cohort of the FCA’s regulatory sandbox. Retrieved 21.06.2020 from https://dashly.com.

De Brauw Blackstone Westbroek. (2016). DNB and the AFM create regulatory sandbox. Retrieved 18.02.2020 from https://www.debrauw.com.

Deloitte. (2018). A journey through the FCA regulatory sandbox: the benefits, challenges, and next steps. Retrieved 19.05.2020 from https://www2.deloitte.com.

Du, W., Pan, S.L., Leidner, D.E., & Ying, W. (2019). Affordances, experimentation and actualization of FinTech: a blockchain implementation study. The Journal of Strategic Information Systems, 28(1). doi:10.1016/j.jsis.2018.10.002.

Duff, S. (2019). A growing trend in financial regulation: thematic sandboxes. Retrieved 27.02.2020 from https://www.cgap.org.

EBA. (2017). Discussion paper on the EBA’s approach to financial technology (FinTech). Retrieved 17.02.2020 from https://eba.europa.eu.

FCA. (2015). Regulatory sandbox: November. Retrieved 18.02.2020 from https://www.fca.org.uk.

FCA. (2017). Regulatory sandbox lessons learned report. Retrieved 25.02.2020 from https://www.fca.org.uk.

FCA. (2018). Regulatory sandbox: cohort 3. Retrieved 21.06.2020 from https://www.fca.org.uk.

FCA. (2019). The impact and effectiveness of innovate. Retrieved 25.02.2020 from https://www.fca.org.uk.

FCA. (2020). Regulatory sandbox. Retrieved 18.06.2020 from https://www.fca.org.uk.

FloodFlash. (2020). Retrieved 27.02.2020 from https://floodflash.co.

FSB. (2020). Monitoring of FinTech. Retrieved 17.02.2020 from https://www.fsb.org.

Gai, K., Qiu, M., & Sun, X. (2018). A survey on FinTech. Journal of Network and Computer Applications, 103. doi:10.1016/j.jnca.2017.10.011.

Guo, Y., & Liang, C. (2016). Blockchain application and outlook in the banking industry. Financial Innovation, 2(1). doi:10.1186/s40854-016-0034-9.

Harasim, J., & Mitręga-Niestrój, K. (2018). FinTech: dylematy definicyjne i determinanty rozwoju. Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu, 531. doi:10.15611/pn.2018.531.15.

Helm, T., Low, A., & Townson, J. (Eds.). (2019). UK FinTech: state of the nation. Retrieved 19.05.2020 from https://gov.uk.

Jagtiani, J., & Lemieux, C. (2018). Do fintech lenders penetrate areas that are underserved by traditional banks. Journal of Economics and Business, 100. doi:10.1016/j.jeconbus.2018.03.001.

Jenik, I., & Lauer, K. (2017). Regulatory sandboxes and financial inclusion. CGAP Working Paper, October.

Junglas, I.A., & Steel, D.J. (2007). The virtual sandbox. ACM SIGMIS Database, 38(4). doi:10.1145/1314234.1314240.

KNF. (2020). Aktualności FinTech. Retrieved 17.02.2020 from https://www.knf.gov.pl.

L&C Mortgages Limited. (2020). Retrieved 21.06.2020 from https://www.landc.co.uk.

Laahanen, S., & Yrjänä, E. (2019). FinTechs: their value promises and disruptive potential. ACRN Oxford Journal of Finance and Risk Perspectives, 8(2).

Makina, D. (2019). The potential of FinTech in enabling financial inclusion. In D. Makina (Ed.), Extending financial inclusion in Africa. London: Academic Press. doi:10.1016/B978-0-12-814164-9.00014-1.

Marchewka-Bartkowiak, K. (2019). Regulacyjne środowisko testowe (regulatory sandbox): doświadczenia i perspektywy. Studia BAS, 1(57). doi:10.31268/studiabas.2019.04.

Marchewka-Bartkowiak, K. (2020). Rola piaskownic regulacyjnych w ograniczaniu ryzyka prawnego sektora FinTech. In E. Miklaszewska, & M. Folwarski (Eds.), Bankowość emocjonalna: cyfrowa transformacja banków a oczekiwania klientów. Warszawa: Poltext.

McAuley, D. (2015). What is FinTech. Retrieved 16.05.2020 from https://medium.com.

Mettle. (2020). Retrieved 21.06.2020 from https://www.mettle.co.uk.

Monergie. (2020). Retrieved 21.06.2020 from https://www.monergie.com.

Moneyhub Enterprise. (2020). Our awards. Retrieved 25.02.2020 from https://www.moneyhubenterprise.com.

Nested. (2020). Retrieved 27.02.2020 from https://nested.com.

NorthRow. (2018). NorthRow selected for the FCA’s regulatory sandbox. Retrieved 21.06.2020 from https://www.northrow.com.

Ocio, S., & Brugos, J.A. (2009). Multi-agent systems and sandbox games. In N.K. Taylor (Ed.), Adaptive and emergent behaviour and complex systems: proceedings of the 23rd convention of the Society for the Study of Artificial Intelligence and Simulation of Behaviour. Edinburgh: Society for the Study of Artificial Intelligence and the Simulation of Behaviour.

Philippon, T. (2016). The Fintech opportunity. NBER Working Paper, 22476. doi:10.3386/w22476.

Polasik, M., & Piotrowski, D. (2016). Payment innovations in Poland: a new approach of the banking sector to introducing payment solutions. Ekonomia i Prawo. Economics and Law, 15(1). doi:10.12775/eip.2016.007.

Ringe, W.G., & Rouf, C. (2018). A regulatory sandbox for robo advice. European Banking Institute Working Paper Series, 26. doi:10.2139/ssrn.3188828.

ROFIEG. (2019). 30 recommendations on regulation, innovation and finance. Retrieved 18.03.2020 from https://ec.europa.eu.

Romanova, I., Grima, S., Spiteri, J., & Kudinska, M. (2018). The Payment Services Directive II and competitiveness: the perspective of European Fintech companies. European Research Studies Journal, 21(2). doi:10.35808/ersj/981.

Spherical Defence. (2020). About us. Retrieved 25.02.2020 from https://sphericaldefence.com.

Szpringer, W. (2016). Fin-Tech: nowe zjawisko na rynku usług finansowych. E-mentor, 2(64). doi:10.15219/em64.1240.

Wonglimpiyarat, J. (2018). Challenges and dynamics of FinTech crowd funding: an innovation system approach. Journal of High Technology Management Research, 29(1). doi:10.1016/j.hitech.2018.04.009.








ISSN 1898-2255 (print)
ISSN 2392-1625 (online)

Partnerzy platformy czasopism