Home Policy & Governance Shifting sands: governments strive to drive fintech growth

Shifting sands: governments strive to drive fintech growth

Global Government Fintech Lab 2022 panel session two: Andrés Barragán, Dr Ben-Benedict Hruby, Marine Krasovska, Taavi Tamkivi and Siobhan Benita (moderator)


The Global Government Fintech Lab 2022’s second panel session examined how governments can encourage fintech companies and solutions, Daniel Tost reports

Governments worldwide are lining up to champion their quickly-growing fintech industries, as well encourage private-sector investment and talent.

The Global Government Fintech Lab’s second panel session – ‘How can governments help the fintech sector to grow?’ – sought to compare and contrast approaches, for example in the creation of infrastructure for fintech experimentation and growth such as regulatory sandboxes.

Sandboxes allow fledgling fintech-based projects to conduct ‘live’ experiments under regulatory supervision. They are becoming increasingly popular as authorities look to encourage innovation and competition across financial services.

Spain is among the nations that has introduced a sandbox and Andrés Barragán, chief of staff in country’s Public Treasury, was the session’s opening speaker. He was followed by representatives from two further nations: Dr Ben-Benedict Hruby from Austria’s Ministry of Finance, where he is senior legal expert and policy adviser; and Marine Krasovska, director of the financial innovation department in Latvia’s Financial and Capital Market Commission. European Fintech Association board member Taavi Tamkivi completed the panel, providing a private-sector perspective.

The discussion, moderated by former UK civil servant Siobhan Benita, concluded with a discussion of how European regulation is being developed to include crypto-assets – a move that, when introduced, will impact many fintech projects across the 27-member European Union (EU).  

Spain exploring further sandboxes

Andrés Barragán

Barragán opened by saying that the Public Treasury (Tesoro Público) is part of Spain’s Ministry of Economic Affairs and Digital Transformation – the ministry’s very name illustrating the importance the country attaches to new technologies.

Spain’s sandbox (‘Sandbox financiero’) welcomed its first cohort of fintech projects last year, with projects overseen by the Banco de España (central bank); or the Comisión Nacional del Mercado de Valores (CNMV – the National Securities Market Commission, the government agency responsible for financial regulation of securities markets); or the Dirección General de Seguros y Fondos de Pensiones (DGSFP – the Directorate-General for Insurance and Pension Funds).

“Regulatory sandboxes are a key tool for supervisors and regulators to test and evaluate new technologies,” Barragán said. In light of accelerating transformation of financial services and innovation across all sectors, he emphasised: “Government and regulators cannot lag behind and the sandbox is an efficient and useful tool.”

Barragán said that “about 100” applications (including from outside Spain, including the US) had been received to date. About 20 projects have so far been “approved to sign a protocol” and assigned regulatory and design support as they get stuck into their experimentation.

“It’s important to mention that this co-operation also helps the private sector improve projects,” he said. “Some that were not accepted in the first cohort are now being accepted precisely because the collaboration with supervisors has improved the project in technological terms, business terms and in terms of compliance to regulation.”

Exploration is now underway into the possibility of further sandboxes in areas such as the green transition and transport, Barragán revealed.

Asked what advice from Spain’s sandbox experience to date he would offer other countries, Barragán identified a need to involve further authorities – and that a Royal Decree and ministerial order was enabling this in Spain. “We need the anti-money laundering authorities to participate directly in the projects as well as the data protection agency, which is very important – not only for this sandbox but in case of any other [future] sandboxes,” he said.

More broadly in the context of fintech disruption, Barragán cautioned that the financial sector relies on trust and that this would need to continue to be paramount. “Cutting-edge technologies such as distributed ledger technology (DLT), biometry, digital identity, artificial intelligence and ‘big data’ are all very important – and we’re focusing on how they are improving and opening our financial sector – but we also need to look at the dimension of how the social relationships are changed with the introduction of technologies,” he said, adding: “These technologies cannot replace trust.”

Austria offers ‘customised’ support

Dr Ben-Benedict Hruby

After Austria’s new government was elected in 2017, it was decided to start creating structures to support fintech innovation, with a regulatory sandbox established a couple of years ago, Hruby said.

“We decided we needed to do something in order to attract investors to our market,” he explained. “We looked at the legal requirements for innovative business models and found a lot of barriers for a quick market entrance”.

So, the Austrian Financial Market Authority (FMA – Finanzmarktaufsicht)‘s sandbox was launched to facilitate dialogue between regulators and entrepreneurial projects, and assess projects in legal terms.

One of the features of Austria’s sandbox, Hruby pointed out, concerns legal requirements to participate. “Other sandboxes are suspending certain prudential requirements, but that’s not what we are doing,” he explained, describing an approach that is “customised” for each fintech project.

Austria encourages supervisory authorities get into contact with interested businesses very early on during the process. “It’s very helpful and good for both sides to get to know each other,” Hruby explained.

Another feature of Austria’s sandbox, which has four ‘phases’ in total, is a mandatory evaluation for each project after two years. “After the test phase has ended, the authorities have to decide if it’s worth extending the legal permission,” Hruby said.

After the test phase is evaluated the business model exits the sandbox and is transferred to regular supervision. 

Latvia making ‘visible’ progress

Marine Krasovska

Latvia has a “small, young and ambitious” fintech market, Krasovska said in her opening remarks.

In the Baltic nation, the Financial and Capital Market Commission (FCMC)’s financial innovation department is responsible for the supervision of fintech companies and supervises ICT security across the financial industry. Any fintech, regardless of the country it is registered in, can consult the authority’s Innovation Hub to find out whether its business model complies with regulation and licensing requirements, Krasovska said.

The FCMC launched a regulatory sandbox in 2018. Krasovska said that while fintechs are concentrated in fields such as crowdfunding, payments and crypto, there has been strong recent growth in RegTech (the use of technology to improve regulatory compliance).

“These RegTech companies have absolutely different types of needs and we shouldn’t forget that they are part of the financial ecosystem providing services to banks and insurance companies in order to manage fraud or anti-money laundering (AML),” Krasovska told the audience.

Krasovska also mentioned that FCMC has “renewed” how it licenses businesses in order to improve its services, introducing a ‘fast track’ and also accepting some documents in English language (as fintech projects often “don’t have geographical borders”). “Fintechs are expecting a partner that understands their language,” she said. “They don’t want to be confronted with an impenetrable jungle of papers, they want the regulator to communicate with them in a different way.”

Latvia is developing a national fintech strategy and Krasovska said she had “big hopes” of it “finally” being approved. “We are not where we want to be, but we are also not where we were two years ago,” she said, adding: “The progress has been visible, and we get very positive feedback from industry.”

With political will, there’s a way

Taavi Tamkivi

“The sandbox mentality is great for companies in the really early phases,” said Tamkivi, who is founder and chief executive of an Estonia-based RegTech company, Salv, alongside his European Fintech Association role. “But there are many more things that governments can do.”

Overseas diplomatic networks had, he said, proved important ways that government authorities had helped him to expand businesses overseas: for example, helping to make connections with regulators, financial intelligence units (FIUs) and private-sector banking associations.

While Estonia does not yet operate a sandbox, it is currently developing a national strategy for fintech. “It shouldn’t only be a governmental document, but a collaborative work between the industry and the government sector,” Tamkivi said.

His overall message was that although structures are important, so were authorities’ attitudes towards new business concepts. Entrepreneurs with innovative ideas should be welcomed, he said, explaining that such “soft measures” were “really helpful for the industry, so I don’t feel like I’m constantly hitting a wall”.

Political will was, he said, pivotal to the sector’s successful growth. “If the agreement that we actually want to support some industries is there, then it will happen,” he said.

RELATED ARTICLE Estonia to develop first fintech strategy – a report on finance minister Keit Pentus-Rosimannus’s keynote address to the Global Government Fintech Lab

EU’s MiCA and DORA important

During the Q&A discussion turned towards developments at the European level (Spain, Austria, Latvia and Estonia are all EU member states).

The European Commission published its digital finance strategy in September 2020. This contained, for the first time, legislative proposals on crypto-assets (the Regulation on Markets in Crypto Assets – MiCA) and digital operational resilience (Digital Operational Resilience Act – DORA), as well as a lower-profile proposed regulation on a pilot regime for financial market infrastructures based on distributed ledger technology (DLT).

“We are in the middle of the so-called trilogue negotiations and we are very, very optimistic that we will have the EU legislation passed by the end of this year,” Hruby said. The precise definition of a ‘crypto-asset’ was “key” – and this remains “hard-fought at a European level” – he said. But nonetheless the EU stands to become the world’s first single market to agree crypto-asset regulation, something that would be a “huge game-changer.”

Barragán called MiCA a “key step forward” for crypto regulation. “It will also be an example of regulation for other countries,” he said, adding: “In these final negotiations we are already seeing the need to constantly update our regulation.” Negotiations involving the European Parliament had shown that MiCA will not cover every aspect of the crypto world, he said. “Regulation is something that needs to evolve all the time.”

“MiCA and DORA will change the way we work on the regulatory side,” Krasovska said. “If we’re talking about DORA, we have counted more than 20 new functions, and MiCA will change everything.”

‘More collaboration’ needed

To bring the session to a close, the panellists were asked how public authorities that tend towards conservatism and risk-aversion when it comes to embracing disruptive new approaches and technologies should best engage with ‘cool or cutting edge’ fintech-led innovation.

Hruby said Austria’s government was working on “employer branding” for the government, Treasury and other departments, but he said the labour market was “tough – not only in Austria.”

Krasovska said that government institutions must be “open-minded”, going on to call for “more collaboration” between authorities, fintech companies and academia, defining the challenge as being “how those three elements are co-ordinated”.

From her own authority’s perspective she added that “of course technology is about risk-taking but from a regulatory point of view it doesn’t matter what kind of technology is used because we are a technology-neutral organisation.”

As illustrated by the EU-focused parts of the discussion, regulatory boundaries remain to be defined and will continue to evolve. “We need to know how far we want to go in the crypto area, for example,” Krasovska said. “How big is the market we want to have, how should it be developed, what about derivative products? It’s a question about the level of competence. Not only in the market but also in the governments.”

How will governments respond? The feeling from the overall session was similar to the sense during the Lab’s previous panel – ‘How can governments ‘get organised’ for fintech?’ – that authorities are getting into gear to capitalise on fintech’s possibilities. In respect of this panel’s focus, there is recognition that they can typically do more to help the private sector, with initiatives such as sandboxes an important part of that.


Watch the session, which was held on 1 June 2022, in full (58min 23sec) =>

Source: Global Government Forum YouTube page


‘Spain’s sandbox welcomes first fintech projects’ – our news story (25 May 2021) on Spain’s regulatory sandbox opening