The draft law for the digital transformation of the financial system is a long-awaited measure by the banking sector. The project anticipates the implementation of a test bench or regulatory sandbox, which is instrumental in promoting innovation in financial services. It is also a tool for the competition authorities, as it allows for synchronization between supervisory practices and financial regulation and the current pace of innovation and digital transformation.
The regulatory sandbox is an experimental field with a special set of rules, which allows innovative companies to test their products and services in a safe environment, without breaking or violating financial regulation. The sandbox can provide a suitable solution for the challenges regulators face with regard to the new digital era.
According to the Spanish Banking Association (AEB), the proposed testing space can contribute to learning, as well as make better use of the effects of technologies in the financial services. It favours consumers’ access to a wider range of innovative solutions, while also allowing Spain to position itself as a center of innovation and attract talent worldwide.
With this proposal, Spain could provide one of the best environments for financial innovation based on technology in Europe.
There is no doubt that the emergence of Fintech has led to conflict for regulatory and supervisory authorities. On the one hand, they must regulate and supervise the new activities, services and innovative products, in accordance with the risks involved and the adequate protection for the financial consumer. But on the other, imposing a regulatory corset or too rigid a supervisor, can be in itself a barrier to innovation. It risks the loss of competitiveness and innovation compared to other markets or competitors.
Currently 27 countries have approved regulatory sandboxes in their legal system. Asia accounts for the lion share’s of this kind of initiative, with 52% of the total.
Six European countries already have initiatives of this type, highlighting those in the United Kingdom, Denmark and the Netherlands.