BIS国际清算银行-Inside-the-regulatory-sandbox_-effects-on-fintech-funding_42页_486kb

Summary of BIS Working Paper No 901: "Inside the regulatory sandbox: effects on fintech funding"

Core Content

This paper examines the impact of the UK's regulatory sandbox on fintech firms' access to capital. It provides empirical evidence on how regulatory sandboxes affect the ability of fintechs to raise funding, using unique data on fintechs in the UK from 2014q1 to 2019q2. The study highlights the role of regulatory sandboxes in reducing information asymmetry and regulatory uncertainty, which are key barriers to capital raising in the fintech sector.

Main Findings

• Funding Increase: Firms that enter the regulatory sandbox raise significantly more capital compared to those that do not. Specifically, the probability of raising capital increases by 50%, and the average amount raised increases by approximately 15% (or $700,000).
• Staggered Entry Effects: The effects are consistent across different cohorts of sandbox entrants, with a 14% to 15% increase in capital raised over two years following entry.
• No Pre-Trends: There are no differential pre-trends across firms, suggesting that the observed effects are not due to pre-existing differences between sandbox and non-sandbox firms.
• Mechanisms of Impact:
  • Reduced Information Asymmetry: The sandbox leads to an increase in first-time investors and foreign investors, indicating that investors perceive sandbox firms as more credible.
  • Reduced Regulatory Costs/Uncertainty: The presence of a dedicated case officer helps firms navigate regulatory complexities, reducing the costs and uncertainties associated with compliance.
  • No Marketing Effect: The results do not support the idea that the sandbox primarily acts as a marketing device. Instead, the impact is more aligned with the idea of a 'stamp of approval' and reduced regulatory barriers.

Key Information

• Sample Size: The study uses data on 118 sandbox firms and a matched sample of 1,400 control fintech firms, resulting in a total of 908 firm-quarter observations for sandbox firms and 54 matched sandbox firms with 158 control firms.
• Data Source: PitchBook is used to collect detailed deal-level data, including deal amount, date, type, and investor information.
• Methodology: The paper employs a difference-in-differences approach, using coarsened exact matching to create a comparable control group. It also controls for firm fixed effects, CEO characteristics, and time-varying industry effects.
• Robustness Checks: The findings are robust to alternative estimation methods and controls for investor behavior, suggesting that the observed effects are not due to omitted variable bias or selection effects.

Policy Implications

• Regulatory sandboxes are a promising tool for promoting fintech innovation while managing risks.
• They help reduce the information asymmetry and regulatory uncertainty that hinder capital raising for fintechs.
• The results suggest that sandboxes can serve as a certification mechanism, improving firms' credibility and access to funding.
• Despite the widespread use of sandboxes, there is limited empirical evidence on their effectiveness. This paper fills that gap by providing micro-level evidence on their impact on fintech funding.

Conclusion

The paper concludes that regulatory sandboxes are effective in improving fintech firms' access to capital, especially for younger and smaller firms. It suggests that sandboxes could become a crucial policy instrument for fostering financial innovation, as they help reduce information asymmetry and regulatory costs. The findings contribute to the ongoing debate on how to balance innovation with consumer protection and financial stability.

Key Points

• Regulatory sandbox: A controlled environment for fintechs to test products with regulatory supervision.
• Fintechs: Face challenges due to information asymmetry and regulatory uncertainty.
• Empirical Evidence: First evidence showing the effectiveness of regulatory sandboxes in improving access to capital.
• Channels of Impact: Reduced information asymmetry and regulatory costs.
• Robustness: Results are consistent across different methodologies and control variables.
• Policy Relevance: Supports the idea of sandboxes as a tool to promote innovation while ensuring stability and consumer welfare.