More than 20 regulators from countries including the UK, Canada, USA and Australia – coming together as the Global Financial Innovation Network (GFIN) – have opened applications for a global fintech ‘sandbox’ following a trial last year.
A sandbox is a framework that allows fintech start-ups and other innovators to conduct experiments in a controlled environment under regulatory supervision.
GFIN is a group of financial regulators and related organisations that launched in January 2019 to boost international co-operation on innovation. It has more than 60 member organisations.
The UK’s Financial Conduct Authority (FCA) currently chairs GFIN’s co-ordination group and has just announced that applications are open for the first ‘official’ cohort of businesses for the sandbox, which will enable firms to test innovative ‘financial products, services, business models or regulatory technology’ across more than one country or jurisdiction.
Trial – but no tests – took place last year
The FCA, which launched a UK regulatory sandbox in 2016, proposed a global sandbox almost three years ago, consulting on the idea in August 2018. The consultation highlighted that major emerging innovation trends within financial services are increasingly global, rather than domestic, in nature: for example, big data, artificial intelligence (AI) and blockchain-based solutions.
With GFIN subsequently formed, the new organisation launched a cross-border testing trial and published an eight-page ‘lessons learned’ document in January. This document – which says the project was ‘previously known as the global sandbox’ and prefers to use the phrase ‘cross-border testing’ – says that none of eight firms selected from 44 applications for cross-border trials actually began testing because they ‘did not develop a testing plan that satisfie[d] each jurisdiction’s criteria’.
The document says that last year’s trial received a high number of applications from firms with ‘regtech’ and cryptoasset-related business models and that, among the former propositions, several were looking at applications of Artificial Intelligence (AI) and machine-learning to help firms with anti-money laundering(AML)/know-your-customer (KYC) checks. It says there was a ‘noticeable lack of applications from large or international firms’, which it says may have been due to the relatively short application window of one month or because ‘the value of taking part was not sufficiently clear’.
To support the new application process, GFIN has developed several tools and solutions, including: a single-entry application form; cross-border testing FAQs to help firms understand the process; and an extension of the application window to nine weeks to allow firms more time to consider and prepare their applications, which must be made by 31 December.
Regulators across five continents participating
As well as the FCA, regulators involved in the cross-border initiative include the Jersey Financial Services Commission and Guernsey Financial Services Commission; and four from Canada: the Alberta Securities Commission; Autorité des marchés financiers (Québec); British Columbia Securities Commission; and the Ontario Securities Commission.
The other regulators involved are: Abu Dhabi Global Market; Australian Securities & Investments Commission; Astana Financial Services Authority – Kazakhstan; Bank of Lithuania; Bermuda Monetary Authority; Capital Markets Authority of Kenya; Central Bank of Bahrain; Central Bank of United Arab Emirates; USA Consumer Financial Protection Bureau; Dubai Financial Services Authority; Taiwan’s Financial Services Commission; Hong Kong Insurance Authority; Hong Kong Monetary Authority; Hong Kong Securities and Futures Commission; Magyar Nemzeti Bank (Central Bank of Hungary); and the Monetary Authority of Singapore (MAS).
Sandboxes are increasing in number worldwide. One established example is MAS’s sandbox, which launched in 2016 – the same year as the FCA’s – and was last year joined by MAS’s ‘Sandbox Express’. Further examples include sandboxes in Abu Dhabi and Hong Kong, while Global Government Fintech has just reported that a recently created financial services authority in India, the International Financial Services Centres Authority (IFSCA), is launching a sandbox as it looks to establish a fintech hub in Gujarat International Finance Tec-City – known as GIFT City – near Gandhinagar, the capital of Gujarat state.
Global Government Fintech reported last month that the FCA had opened the latest (seventh) application process for its established (UK) sandbox which, since its creation has accepted six cohorts of businesses; and that the FCA is in the throes of launching a further UK sandbox – a digital sandbox, which aims to support earlier-stage innovation and is being run with the City of London Corporation. Applications for the seventh cohort for the main sandbox close on the same year-end deadline as the GFIN sandbox.