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2020 | OriginalPaper | Chapter

Rethinking the Regulatory Sandbox for Financial Innovation: An Assessment of the UK and Singapore

Author : Christopher Chen

Published in: Regulating FinTech in Asia

Publisher: Springer Singapore

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Abstract

After the UK launched the first regulatory sandbox regime in 2016, the approach was quickly transplanted to numerous other countries as a means of promoting innovation, improving competition and enhancing financial inclusion. However, it remains unclear whether the approach can effectively achieve the relevant policy goals and thus justify the differential regulatory treatment. This chapter provides a broad overview of the regulatory sandbox regime and examines its potential benefits and problems. The chapter then provides some empirical evidence by analyzing the sandboxes awarded in the UK and Singapore between 2016 and 2018 with the aim of identifying what the businesses awarded the sandboxes are doing, the services they provide and their current regulatory status against the backdrop of the financial technology revolution. These cases provide a basis on which to assess the effectiveness of the regulatory sandbox approach in its infancy stage and provide some reflections for regulators.

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previous chapter Regulating Fintech in Asia: An Introduction

next chapter Hong Kong’s Fintech Automation: Economic Benefits and Social Risks

See Arner, Barberis and Buckley (2017), pp. 378 et seq.

Jenik and Lauer (2017).

E.g., Banking Act Sect. 4 (Singapore); Banking Ordinance Sect. 11 (Hong Kong).

Some countries might grant regulators the power to liquidate a firm for conducting illegal financial services. E.g., Digital Satellite Warranty Cover Ltd v Financial Services Authority [2013] UKSC 7.

Zetzsche et al. (2018), pp. 31–32.

Feng (2018).

Jenik and Lauer (2017), p. 1.

ESMA, EBA and EIOPA (2018).

Zetzsche et al. (2018), p. 45.

Zetzsche et al. (2018), p. 64.

Zetzsche et al. (2018), p. 35.

Chiu (2017), p. 747.

Zetzsche et al. (2018), p. 45 and 68; Jenik and Lauer (2017), p. 1.

UNSGSA FinTech Working Group and CCAF (2019), pp. 28–30.

Jenik and Lauer (2017), p. 2.

Zetzsche et al. (2018), p. 68.

E.g., Singapore aims to be a smart financial centre. Monetary Authority of Singapore, Fintech Regulatory Sandbox (Consultation Paper P005-2016) 1.1.

ESMA, EBA and EIOPA (2018), pp. 18–19.

UNSGSA FinTech Working Group and CCAF (2019), p. 7.

For Malaysia, see Bank Negara Malaysia (2016); For Australia, see Australian Securities & Investment Commission (2017). For Thailand, see Bank of Thailand (2016), pp. 30 and 63.

See the Financial Technology Development and Innovative Experimentation Act (Taiwan), promulgated on 31 January 2018, and the Special Act on Promotion and Vitalization of Convergence of Information and Communications Technology (South Korea), passed on 20 September 2018.

Gehrke (2018).

Hong Kong Monetary Authority on the Fintech Supervisory Sandbox. Available at: https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/fintech-supervisory-sandbox.shtml. Accessed 31 March 2020.

Hong Kong Securities and Futures Commission on the SFC Regulatory Sandbox. Available at: https://www.sfc.hk/web/EN/sfc-fintech-contact-point/sfc-regulatory-sandbox.html. Accessed 31 March 2020; Hong Kong Insurance Authority on the Insurtech Corner. Available at: https://www.ia.org.hk/en/aboutus/insurtech_corner.html. Accessed 31 March 2020.

ESMA, EBA and EIOPA (2018), pp. 40–41.

See FCA website. Available at: https://www.fca.org.uk/publications/consultation-papers/global-financial-innovation-network. Accessed 31 March 2020.

See FCA website. Available at: https://www.fca.org.uk/firms/global-financial-innovation-network. Accessed 31 March 2020.

See AFIN website. Available at: https://afin.tech/. Accessed 31 March 2020.

See AFIN website. Available at: https://afin.tech/index.php/2017/11/02/afin-partners/. Accessed 31 March 2020.

See Hong Kong Monetary Authority website. Available at: https://www.hkma.gov.hk/eng/key-functions/international-financial-centre/fintech-supervisory-sandbox.shtml. Accessed 31 March 2020.

Monetary Authority of Singapore (2016) Annex A.

Monetary Authority of Singapore (2018), pp. 4–5.

Australian Securities & Investment Commission (2017), RG257.26 to 28.

ASIC Corporations (Concept Validation Licensing Exemption) Instrument 2016/1175, Sect. 4.

ASIC Corporations (Concept Validation Licensing Exemption) Instrument 2016/1175, Sects. 5–6; Australian Securities and Investment Commission (2017), RG257. 18–19.

Australian Securities & Investment Commission (2009), RG51.6.

E.g., Banking Act Sect. 15D (Singapore).

Chiu (2017), p. 748.

Zetzsche et al. (2018), pp. 58–59.

Jenik and Lauer (2017), p. 1; Zetzsche et al. (2018), p. 78.

Chiu (2017), p. 747.

Zetzsche et al. (2018), p. 79; ESMA, EBA and EIOPA (2018), p. 16.

Zetzsche et al. (2018), p. 78.

Zetzsche et al. (2018), p. 64.

Zetzsche et al. (2018), p. 79.

ESMA, EBA and EIOPA (2018), p. 35.

ESMA, EBA and EIOPA (2018), pp. 35–36.

The Monetary Authority of Singapore’s website for experimenting in the sandbox. Available at: http://www.mas.gov.sg/Singapore-Financial-Centre/Smart-Financial-Centre/FinTech-Regulatory-Sandbox/Experimenting-in-the-sandbox.aspx. Accessed 31 March 2020.

Zetzsche et al. (2018), p. 79.

Zetzsche et al. (2018), p. 80.

Zetzsche et al. (2018), p. 46.

Chiu (2017), p.765.

Chiu (2017), p. 745.

Financial Conduct Authority (2017‐2020).

Financial Conduct Authority (2017), par. 2.4.

The FCA also noted in 2017 that distributed ledger technology was the most popular technology used across the first two cohorts. Financial Conduct Authority (2017), par. 3.8.

Our result is consistent with the FCA’s assessment after the first two cohorts. Financial Conduct Authority (2017), par. 3.5.

Financial Conduct Authority (2017), par. 2.7.

Financial Conduct Authority (2017), par. 2.9.

Financial Conduct Authority (2017), paras. 2.10 and 2.11.

Financial Conduct Authority (2017), paras. 2.17 and 2.18.

Monetary Authority of Singapore (2016).

Monetary Authority of Singapore (2016), par. 5.2.

Monetary Authority of Singapore (2016), par. 2.2.

Monetary Authority of Singapore (2016), par. 5.5.

Monetary Authority of Singapore (2016), par. 6.2.

Monetary Authority of Singapore (2018).

Monetary Authority of Singapore (2018), par. 2.2.

Monetary Authority of Singapore (2018), par.2.3.

Monetary Authority of Singapore (2018), par. 3.1.

Monetary Authority of Singapore (2018), par. 3.4.

Monetary Authority of Singapore (2018), par. 3.6.

Monetary Authority of Singapore (2018), par. 4.2.

Monetary Authority of Singapore (2018), par. 5.2.

Monetary Authority of Singapore (2018), par. 6.2.

UNSGSA FinTech Working Group and CCAF (2019), pp. 30–31.

UNSGSA FinTech Working Group and CCAF (2019), p. 30.

Ernst & Young (2016).

KPMG (2018), p. 51.

KPMG (2018).

KPMG (2018), p. 38.

FCA website. Available at: https://www.fca.org.uk/firms/regulatory-sandbox/cohort-1. Accessed 31 March 2020.

FCA website. Available at: https://www.fca.org.uk/firms/regulatory-sandbox/cohort-3. Accessed 31 March 2020.

See FCA website. Available at: https://www.fca.org.uk/firms/financial-services-register. Accessed 31 March 2020.

Financial Conduct Authority (2017), par. 2.5.

This is in line with the FCA’s self-assessment in 2017. See Financial Conduct Authority (2017), par.2.9.

Arner DW, Barberis J, Buckley RP (2017) Fintech, regtech, and the reconceptualization of financial regulation. Northwestern Journal of International Law & Business 37:371–413

Australian Securities & Investment Commission (2017) Regulatory guide 257: Testing fintech products and services without holding an AFS or credit licence. https://download.asic.gov.au/media/4420907/rg257-published-23-August-2017.pdf. Accessed 31 March 2020

Australian Securities & Investment Commission (2009) Regulatory guide 51: applications for relief. https://download.asic.gov.au/media/1238972/rg51.pdf. Accessed 31 March 2020

Bank Negara Malaysia (2016) Financial technology regulatory sandbox framework. https://www.bnm.gov.my/index.php?ch=57&pg=137&ac=533&bb=file. Accessed 31 March 2020

Bank of Thailand (2016) Annual Report 2016. https://www.bot.or.th/English/ResearchAndPublications/Report/DocLib_AnnualEconReport/BOTAnnualReport_2016.pdf. Accessed 31 March 2020

Chiu IHY (2017) A Rational Regulatory Strategy for Governing Financial Innovation. European Journal of Risk Regulation 8:743–765CrossRef

Ernst & Young (2016) Capital markets: innovation and the fintech landscape. https://www.ey.com/Publication/vwLUAssetsPI/EY-capital-markets-innovation-and-the-finTech-landscape/%24FILE/EY-capital-markets-innovation-and-the-finTech-landscape.pdf. Accessed 31 March 2020

Feng E (2018) Chinese government faces peer-to-peer lending scandals dilemma. Financial Times (12 November). https://www.ft.com/content/c71eea4a-c198-11e8-84cd-9e601db069b8. Accessed 31 March 2020

Financial Conduct Authority (2017) Regulatory sandbox lessons learned report. https://www.fca.org.uk/publications/research/regulatory-sandbox-lessons-learned-report. Accessed 31 March 2020

Financial Conduct Authority (2017–2020) Applying to the regulatory sandbox. https://www.fca.org.uk/firms/regulatory-sandbox/prepare-application. Accessed 31 March 2020

Gehrke N (2018) The Japan FSA regulatory sandbox. https://medium.com/tokyo-fintech/the-japan-fsa-regulatory-sandbox-b7e9f38e962e. Accessed 31 March 2020

Jenik I, Lauer K (2017) Regulatory Sandboxes and Financial Inclusion. https://www.cgap.org/research/publication/regulatory-sandboxes-and-financial-inclusion. Accessed 31 March 2020

KPMG (2018) The pulse of fintech 2018. https://assets.kpmg/content/dam/kpmg/xx/pdf/2018/07/h1-2018-pulse-of-fintech.pdf. Accessed 31 March 2020

Monetary Authority of Singapore (2018) Consultation paper P015–2018: sandbox express. https://www.mas.gov.sg/-/media/MAS/News-and-Publications/Consultation-Papers/2018-Nov-Sandbox-Express/Consultation-Paper-on-Sandbox-Express.pdf. Accessed 31 March 2020

Monetary Authority of Singapore (2016) Fintech regulatory sandbox guidelines. http://www.mas.gov.sg/~/media/Smart%20Financial%20Centre/Sandbox/FinTech%20Regulatory%20Sandbox%20Guidelines%2019Feb2018.pdf. Accessed 31 March 2020

UNSGSA FinTech Working Group and CCAF (2019) Early lessons on regulatory innovations to enable inclusive fintech: innovative offices, regulatory sandboxes, and regtech. https://www.unsgsa.org/files/3515/5007/5518/UNSGSA_Report_2019_Final-compressed.pdf. Accessed 31 March 2020

Zetzsche DA et al. (2018) Regulating a revolution: from regulatory sandboxes to smart regulation. Fordham Journal of Corporate and Financial Law 23:31–103

Title: Rethinking the Regulatory Sandbox for Financial Innovation: An Assessment of the UK and Singapore
Author: Christopher Chen
Publisher: Springer Singapore
Book: Regulating FinTech in Asia
Print ISBN: 978-981-15-5818-4

Electronic ISBN: 978-981-15-5819-1

Copyright Year: 2020
DOI: https://doi.org/10.1007/978-981-15-5819-1_2

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