A ‘Fintech Sandbox’ is a technology environment where companies/firms would work in close partnership with regulators to develop their ideas and technology without the red tape that may inhibit their potential growth. In the UK, France, Singapore, Hong Kong and Australia, regulators have already or are currently laying the groundwork for a such a Sandbox environment that gives the firms the ability to test a new product or business model with a limited launch, without going through the full regulatory process.
Ideally, this would create the perfect environment to foster rapid growth for these budding firms/technologies and focus solely on the product without being impeded by the regulators. To bring the United States on par with its peer nations and allow FinTech firms in the United States the opportunity to realize their potential (whether it be in the payment space, new financial products, lending, ID verification etc), Representative Patrick McHenry (R-NC) has introduced a bill that would mirror the UK’s sandbox, requiring many federal agencies including the Federal Reserve Board, the Treasury Department and the Securities and Exchange Commission to develop an internal “Financial Services Innovation Office” where companies can seek help in testing a product.
Under the McHenry proposal, financial technology firms would be required to prove to the regulator that:
- their innovation serves a public interest,
- improves access to financial products or services,
- doesn’t pose a system risk to the financial system or consumers.
While some agencies may currently have a similar program, McHenry’s bill would add an additional layer of data sharing and reporting to Congress over time. It would also force regulators to be more attuned and involved in the marketplace. If the bill is enacted, the federal agencies would then have 60 days to identify at least three areas of existing regulation that could apply to financial innovation and what areas they would consider waiving or modifying regulation upon petition from a fintech firm. However, regulators face a tricky balance: letting companies push new products to market while protecting consumers from possible fraud.
There are some reservations regarding about the Sandbox facing overwhelming demand; Patrick Pinschmidt, former deputy assistant secretary at the Treasury Department and executive director of the Financial Stability Oversight Council, commented at a FinTech Forum in Silicon Valley on Wednesday, 21st of September; “It could conceivably become a very crowded sandbox and that’s not to say that’s a bad thing,”. There is an element of politicization if like the UK; the United States decides to “cherry pick” the most promising projects, but the “sandbox” approach is something appreciated by fintech firms. Siddhartha Sharma, Chief Technology Officer at Hedgeable has said that in the end, the consumer is the one who could really win. “From a customer’s standpoint, they get to test out and be a partner in the development of a product. Their feedback would be incorporated into the final product,” said Sharma. Hence the consumer not only shapes the future, but they also get an education about the amazing innovations that are happening.
While McHenry conceded that passing the bill this year would be difficult, he emphasizes that the introduction of this bill sparks a much needed conversation and would lay the groundwork for supportive regulations and infrastructure for the future.
Image credit to: Martin Falbisoner. Licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.
Under the McHenry proposal, financial technology firms would be required to prove to the regulator that:
- their innovation serves a public interest,
- improves access to financial products or services,
- doesn’t pose a system risk to the financial system or consumers.
While some agencies may currently have a similar program, McHenry’s bill would add an additional layer of data sharing and reporting to Congress over time. It would also force regulators to be more attuned and involved in the marketplace. If the bill is enacted, the federal agencies would then have 60 days to identify at least three areas of existing regulation that could apply to financial innovation and what areas they would consider waiving or modifying regulation upon petition from a fintech firm. However, regulators face a tricky balance: letting companies push new products to market while protecting consumers from possible fraud.
There are some reservations regarding about the Sandbox facing overwhelming demand; Patrick Pinschmidt, former deputy assistant secretary at the Treasury Department and executive director of the Financial Stability Oversight Council, commented at a FinTech Forum in Silicon Valley on Wednesday, 21st of September; “It could conceivably become a very crowded sandbox and that’s not to say that’s a bad thing,”. There is an element of politicization if like the UK; the United States decides to “cherry pick” the most promising projects, but the “sandbox” approach is something appreciated by fintech firms. Siddhartha Sharma, Chief Technology Officer at Hedgeable has said that in the end, the consumer is the one who could really win. “From a customer’s standpoint, they get to test out and be a partner in the development of a product. Their feedback would be incorporated into the final product,” said Sharma. Hence the consumer not only shapes the future, but they also get an education about the amazing innovations that are happening.
While McHenry conceded that passing the bill this year would be difficult, he emphasizes that the introduction of this bill sparks a much needed conversation and would lay the groundwork for supportive regulations and infrastructure for the future.
Image credit to: Martin Falbisoner. Licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.
About the Author: Adit Vaddi
Adit Vaddi is a business development associate with a Bachelor of Arts in Economics from Vassar College, New York. He has a background in Economics, Accounting, Political Science and Operations (Event Management). He is from Hyderabad, India. Prior to Crowd Valley, Adit has worked as a research analyst for Baring's Private Equity Partners in Mumbai and for the IdeaSpace Foundation in Manila as well as a risk analyst for Fincare in Bangalore. On the operations side, Adit has organized and run over 30 large scale events that cater primarily to a college community. He is currently based in New York City.
Adit Vaddi is a business development associate with a Bachelor of Arts in Economics from Vassar College, New York. He has a background in Economics, Accounting, Political Science and Operations (Event Management). He is from Hyderabad, India. Prior to Crowd Valley, Adit has worked as a research analyst for Baring's Private Equity Partners in Mumbai and for the IdeaSpace Foundation in Manila as well as a risk analyst for Fincare in Bangalore. On the operations side, Adit has organized and run over 30 large scale events that cater primarily to a college community. He is currently based in New York City.
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