The role of regulatory sandboxes in the development of innovations on the financial services market: the case of the United Kingdom
The role of regulatory sandboxes in the development of innovations on the financial services market: the case of the United Kingdom

Summary/Abstract: Motivation: The dynamic development of innovation in the financial market and the process of globalisation were at the heart of creating a new financial technology sector, called FinTech. In order to allow for a safe and intensive development of innovations and create opportunities for all entities, including start-ups, state supervisors and regulators create dedicated market environments — regulatory sandboxes. Aim: (1) to define the concept of a regulatory sandbox; (2) to identify the forms of support for innovative solutions in the financial market; (3) to identify the outcomes of a regulatory sandbox in the case of the United Kingdom. Results: Regulatory sandboxes are a new supervisory tool which, despite only a few years of history, has gained recognition of financial market participants. Research has shown that a regulatory sandbox has many benefits not only for the companies joining it but also for the supervisory institution. Sandboxes allow participants to receive continuous substantive support, obtain licences faster and resolve legal doubts. Participation in a regulatory sandbox is also a form of promotion and facilitates raising investment capital. On the other hand, regulatory sandboxes are still in the early stages of development, and the support they provide is limited. Some companies also experience problems in dealing with the long and complicated process of applying for admission and the limited number of participants. The latter obstacle may result in unequal competition on the market and failure to fully exploit the development potential of FinTech. The most important benefit for a supervisor is that through its engagement in a regulatory sandbox, it gains additional knowledge of new technologies and new business models, and its employees develop important competences. The dialogue conducted with professional financial market participants allows for a better assessment of the risks associated with new technologies. The first outcomes of participation in a regulatory sandbox are encouraging for new innovative players and supervisory authorities. It is recommended that this initiative be extended in order to enable more market players to conduct testing.

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