The Joint Committee of the European Supervisory Authorities (the ESAs) issued a report on 7 January 2019 on the status of regulatory sandboxes and innovation hubs following consultations with national regulators across the European Union.
The report compares the innovation hubs and regulatory sandboxes established in 21 EU member states and three EEA states, flagging too that Hungary and Spain are in the process of establishing regulatory sandboxes.
There are significant similarities in the operation and experiences of innovation hubs across these jurisdictions, according to the report. The most common questions asked by participants relate to the regulatory status of their proposed activities, including the applicability of anti-money laundering rules. However, participants have also used the innovation hubs as an opportunity to suggest changes to the regulatory framework to facilitate more innovative businesses.
As for the regulatory sandboxes, the ESAs did not identify significant differences between the jurisdictions, other than in relation to the intake process. For instance, in Denmark and the United Kingdom, participants must apply at fixed stages as part of a cohort.
Key issues identified with operating innovation hubs and regulatory sandboxes include the following:
- The need for enhanced coordination and knowledge sharing between domestic and cross-border authorities
- The risk that innovation hub participants might consider indicative guidance to be final determinations by the regulator
- The risk that consumers might consider a company’s participation in a regulatory sandbox to be the regulator’s endorsement once that company has gone to the market
Best practices for the design and operation of innovation hubs and regulatory sandboxes are proposed in the report, one aim of which is to stop regulators operating on different bases, which could lead to
- regulatory arbitrage;
- barriers to cross border operations; and
- the removal of the level playing field between jurisdictions.
As next steps to address these issues, the report suggests the development of guidance on the cooperation between member states and the creation of an EU network to bridge innovation hubs established at a national level. We previously posted on the proposal by the UK FCA and certain non-EU regulators for the Global Financial Innovation Network, and this is perhaps the next step in the push towards a more coordinated regulatory approach to fintech.We will continue to monitor developments in this regard.