Spain’s plans to launch a regulatory ‘sandbox’ for financial technology have regained momentum as the country emerges from almost a year of political deadlock.
The Council of Ministers in the country – which has recently installed a left-wing coalition government – has signed off the draft of a long-proposed ‘Digital Transformation of the Financial Sector’ law. It will need final approval from the country’s parliamentarians.
The proposal lays the ground for the implementation of a regulatory sandbox: a trial and error testing space in which fintech projects can be undertaken with real clients without the risk of infringing financial regulation. Experts in Madrid expect the sandbox to launch later this year.
Supervising the sandbox
Spain’s fintech experimentation will come under the supervision of three authorities: the Banco de España (Bank of Spain – the country’s central bank); the Comisión Nacional del Mercado de Valores (CNMV – the National Securities Market Commission, the government agency responsible for financial regulation of securities markets); and the Dirección General de Seguros y Fondos de Pensiones (DGSFP – the Directorate-General for Insurance and Pension Funds). The organisation responsible for supervising depends on the sector in which a project is being implemented: banking, financial markets or insurance.
The proposal would allow the companies behind the projects – once the projects have been trialled through the sandbox – to begin to provide regulated activity through a simplified authorisation process, subject to supervisory approval, according to a briefing from law firm Bird & Bird’s Spain market specialists.
Bird & Bird says that to be eligible to participate, projects will need to demonstrate a high degree of technology-based financial innovation; be sufficiently advanced; and able to show improvements in regulatory compliance, customer protection, or increased efficiency over markets and in the quality of financial services provision.
The law firm points out that, on average, parliamentary ratification of a legislative proposal can take up to five months. According to the latest government statements, the sandbox aims to be fully operational and admitting its first projects in 2020.
The sandbox proposal was first drafted more than a year ago following a public consultation, but Spain spent much of 2019 in political deadlock following an inconclusive general election last April. A repeat election in November saw Pedro Sánchez’s Socialist Party (PSOE) claim most seats but fall short of a majority. Sánchez is now heading a coalition government with the leftist Unidas Podemos.
According to a note from law firm Linklaters, published after the bill was initially approved and before the political hiatus, companies that participate in the sandbox will benefit from faster authorisation to fully operate.
Ceyhun Pehlivan, managing associate at Linklaters in Madrid, told Global Government Forum this week: “Spain has been planning the fintech sandbox for more than a year but everything went on hold given the political situation. The fintech community in Spain will be hoping that it launches as soon as possible during 2020.”
Bulgaria also joins sandbox party
In similar recent development on the other side of southern Europe, Bulgaria’s finance ministry last week announced plans to launch the first regulatory technology sandbox in the Balkans.
The EU member state’s finance minister, Vladislav Goranov, announced at a fintech conference held in the country’s capital that his ministry would be “directly involved” in setting up and participating in managing the ‘Sofia RegTech Sandbox’.
Goranov highlighted the lack of clear regulatory guidelines as a challenge for institutions, regulators, market participants and fintech businesses operating in Bulgaria. But he said this was an opportunity for the country “to take proactive actions in order to attract businesses from all over the world”.
The Sofia RegTech Sandbox will allow companies to test their products and services in a secure regulatory environment. Open dialogue with businesses will give institutions better understanding as to what regulatory frameworks will be needed to boost innovation, according to the ministry’s statement.
Within eastern and central Europe, Sofia’s move to launch a sandbox follows the trail blazed by the Baltic state of Lithuania in October 2018. Global Government Forum reported last year on the latest fintech developments in the country, including its blockchain-based sandbox LBChain.
The Digital Financial Services Observatory, housed within the Columbia Institute for Tele-Information at Columbia Business School in New York, tracks the emergence of regulatory sandboxes, currently listing more than 40 countries worldwide with sandbox plans either announced or live.