Internet has been rife with financial services regulators in different countries launching fintech sandboxes. While established fintech hubs have had established fintech sandboxes by their regulators for some time now such as the UK’s FCA, Australia’s ASIC and Singapore’s MAS, the past week has seen three other not so established countries, coincidentally all in Asia, launch their regulatory sandbox –
- Hong Kong Monetary Authority, arguably the most important due to links to the vast Chinese market
- Bank Indonesia (BI), the central bank of the 4th most populated country in the world, where there is already a huge surge of mobile payments
- Bank of Thailand, Thailand’s central banker, again focusing on payment related innovation.
While arguably fintech sandboxes have become du jour across the world, I sought to examine the critical factors that would require one and if at all it is required.
Pros:
- Safety – Obviously, the primary objective of the sandbox is to ensure safety not just of the average joe customer who chooses to use it but of the entire financial system
- Ground rules – much as we hate it, there is always a case for somebody to lay down the ground rules, fintech must be no different
- Level playing field – again, a key point, it gives smaller fintech start ups a leg up by granting them access to testing and real world data and regulations which they might not have
Cons:
- Time – the entire premise of the fintech industry has been on cutting down time to market, passing through a regulatory hurdle will definitely add to this and has the potential to stifle innovation with bureaucracy.
- First mover advantage – the fintech world is a competitive space, where the first mover advantage can make the difference between an unicorn and an also-ran. Filings with the regulator etc. increases the chances of the technology becoming commonplace or even worse, superseded
- Regulatory oversight – a key principle of fintech development is to give the customer exactly what they want. Having regulatory oversight, skews this in certain ways such as, for example, what if the fintech innovation adversely affects revenues of state owned banks?
Some additional questions were also raised when the Monetary Authority of Singapore introduced their fintech sandbox, link here, with not much to say how these were addressed.
While on balance it would seem that the case for a fintech sandbox seems evenly poised, an interesting fact, to the best of my knowledge, is that the United States, has not gone in the direction of a centrally regulated fintech sandbox, with a quick search indicating a non-profit is piloting this.
To conclude, my verdict would be to rule in favour of a fintech sandbox, if possible governed by an independent body , which evens out the field for all players without affecting time or speed to market or introduce artificial constraints while safeguarding the overall ecosystem per se.
fintechenthusiast 