Sandboxes or Beaches?
The last few years have seen a real surge in the uptake of so called “sandboxes” by regulators across the globe. Our regular readers will be well aware of the increasing adoption of such schemes and the burgeoning drive to encourage innovation and the use of new technology to improve the delivery of financial services, lower costs, and reduce compliance burden. The idea of the “sandbox” comes into play in situations in which a new Fintech firm wants to test out demand for an entirely new kind of service that might not fit into the boundaries of existing regulation, or in which the costs of gaining regulatory approval would be so high as to make it impossible for a small new firm to be able to undertake the experiment. The Sandbox is a tightly controlled environment in which companies are able to run their experiments under the gaze of the regulator, while not having all of the relevant official approvals or licenses.
Newly appointed SEC commissioner, Hester Peirce, brought a different insight to the topic of sandboxes by arguing that these initiatives may place regulators and the regulated too close together: What troubles me about sandboxes, however, is that the regulator is typically sitting right there next to the entrepreneurs. The regulator is facilitating and hosting the sandbox. The Commissioner’s suggested alternative is that the regulator should be thought of as a “Lifeguard”, overlooking activity on a beach. While accepting that the Sandbox approach seems to work in several environments, Peirce is arguing for intense – and curious – study of these innovations (including ICOs and crypto-assets) at arms length, concerned that sandboxes might mean that the regulator’s judgement about the commercial viability of an offering could get in the way of market determinations. A thoughtful speech. Find it here. It was noticeable at the IOSCO conference this week that several speakers were keen to emphasise that their “sandboxes” could be thought of as “labs”.
