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EBA Industry Roundtable Summary: Regulatory Sandboxes and Innovation Hubs

Overview

The European Banking Authority (EBA) hosted an industry roundtable on 3 September 2018 in London, focusing on regulatory sandboxes and innovation hubs as mechanisms to foster FinTech innovation in the EU. The event aimed to identify best practices and explore the need for further regulatory measures to support the development and scaling of financial technology across the EU.

Background and Objectives

EBA FinTech Roadmap (March 2018)

The EBA, along with the other ESAs (European Securities and Markets Authority and European Insurance and Occupational Pension Authority), has developed a FinTech Roadmap to guide the regulatory response to financial technology innovation.

Pre-Event Poll Results

• 68% of participants believed the EU is lagging behind other global financial centres in facilitating technology-enabled innovation.
• 66% disagreed that competent authorities have a good understanding of FinTech.
• 95% agreed that regulatory sandboxes and innovation hubs are effective in facilitating FinTech.
• 29% were aware of coordination between sandboxes and innovation hubs.
• 89% indicated that other barriers to cross-border FinTech applications exist beyond the scope of these mechanisms.

Objectives

The roundtable aimed to:

• Strengthen communication between firms and competent authorities.
• Enhance firms' understanding of regulatory expectations.
• Improve competent authorities' awareness of opportunities and risks.
• Facilitate cross-border cooperation.
• Promote consistency and transparency in sandbox and innovation hub operations.
• Encourage a common understanding of proportionality in regulatory schemes.
• Enable quicker market access and scaling of FinTech across the EU.

Regulatory Sandboxes

Definition

Regulatory sandboxes are frameworks where firms can test innovative financial products, services, or business models under the supervision of competent authorities.

Phases

1. Application: Firms submit an application judged against publicly available criteria.
2. Preparation: Parameters are determined by the competent authority. Firms may need to apply for a licence if they are not already licensed.
3. Testing: A testing window is provided where firms can test their propositions. The competent authority monitors the process.
4. Evaluation: Results are reviewed, and a decision is made on exiting the sandbox. Limitations or restrictions may be removed or licenses may be withdrawn.

Key Questions for Participants

• What is the added value of a regulatory sandbox?
• How should eligibility be determined? Should there be a distinction between incumbents, new entrants, and technology providers?
• How can risks be mitigated during the testing phase? Are testing parameters such as geographic and consumer limits helpful?
• Should test outcomes be shared with other competent authorities or made public?
• Are there issues requiring coordination with other authorities (e.g., data protection)?
• What can be done to facilitate scaling-up across the EU? Should testing be simultaneous in multiple Member States? Should outcomes be transferable?

Innovation Hubs

Definition

Innovation hubs are platforms where firms can engage with competent authorities to seek clarification on the regulatory compliance of their innovative offerings.

Participants

• Incumbent institutions
• New entrants
• Other FinTech firms and technology providers

Key Questions for Participants

• What is the added value of an innovation hub?
• Should innovation hubs be open to all firms or only new entrants?
• What is the most user-friendly interface (online portal, telephone, meetings, etc.)? Are enquiry forms helpful?
• Should outcomes be shared with other competent authorities or made public?
• Is coordination between competent authorities necessary? If so, what is the best tool to promote it?

Next Steps

The EBA outlined the following actions post-roundtable:

• Detailed analysis of industry inputs and further contributions from competent authorities – Q3 2018
• Finalisation of the report in conjunction with other ESAs – Q3/Q4 2018
• Publication of the report – Q4 2018
• Follow-up work in 2019, in line with the FinTech Action Plan, involving the European Commission and other ESAs.