Approaches

Innovation Hub

An Innovation Hub can take various avatars depending on the appetite and mandate of the authority. It is most often a central contact point to streamline queries and provide support, advice, guidance to either regulated or unregulated firms to help them navigate the regulatory, supervisory, policy or legal environment. Support can be direct or indirect via guidance to the market and does not generally include testing of products or services.

Most commonly, they provide support, advice, guidance and even, in some cases, physical office space, to regulated and unregulated firms. Single points of contact, dedicated newly created units, identified networks of experts or similar organizational arrangements can be considered as Innovation Hubs.

BenefitsRisks
1. Allows regulators to better understand the fintech market and builds capacity to support subsequent regulatory reform1. Requires some dedicated resources- but less than other approaches and skillset can be varied as dependent on the function.
2. Guides interactions with firms while allowing regulators to have oversight of emerging financial products and trends.2. Regulators should be cautious to not provide “legal” advice to firms and define the limits of the Innovation
3. Supports the fintech ecosystem and fosters an open dialogue with industry. 
4. Allows the policymaker to understand and identify trends before embarking on a more resource intensive approach towards fintech. 
5. Assist regulators by informing them of potential issues around fintech that could be relevant for policy development. 
6. Less resource intensive relative to other innovation facilitators 
7. Suitable for all fintech markets 

Country Examples

Link to France case studies
France
Link to Germany case studies
Germany
Link to Morocco case studies
Morocco

Approaches

Regulatory Sandbox

A Regulatory Sandbox is a controlled, time-bound live testing environment, defined by regulators which may feature regulatory forbearance and alleviation through discretions. It allows innovators to test, on a small scale, innovative products, services, business models and delivery mechanisms subject to regulatory discretion and proportionality. The testing environment may involve limits or parameters within which the testing firms must operate.

Sandboxes tend to work in a live, but restricted environment and can be open to authorized and unauthorized businesses and technology firms providing services to entities based on tailored eligibility criteria. At their core, Sandboxes are, formal regulatory programs that are a reaction to the rapidly changing backdrop of digital financial services. They provide a dynamic, evidence-based regulatory environment which learn from, and evolve with, emerging technologies.

BenefitsRisks
1. Allows small scale testing of innovative products, services, business models and delivery mechanisms1. Requires substantial resources and capacity to implement, as well as engagement with multiple stakeholders through various committees
2. Provides insight into the market; providing the regulator with intelligence on developments, trends and emerging risks.2. Not suitable for small fintech markets and risks include that few applicants apply to the Sandbox
3. Creates open and active dialogue between regulators and firms and brings agility to the regulatory and supervisory framework3. Risk of seen to be picking winners.
4. More direct control over risks4. Risk of inappropriately designed framework without a clear objective in mind might result in limited or inappropriate applications.
5. Ability to review the existing regulations to purpose5. Outcomes might be difficult to measure if objectives not defined at the outset.
6. Provide a dynamic, evidence-based regulatory environment to learn from, and evolve with new technologies6. Can be deeply labor intensive
7. Suitable for larger and more developed fintech markets where a clear objective has been determined. 

Country Examples

Link to China case studies
China
Link to Australia case studies
Australia
Link to Philippines case studies
Philippines
Link to Mexico case studies
Mexico
Link to Thailand case studies
Thailand
Link to Sierra-Leone case studies
Sierra-Leone
Link to Hong-Kong-(China) case studies
Hong-Kong-(China)
Link to India case studies
India
Link to Pacific-Islands case studies
Pacific-Islands
Link to Rwanda case studies
Rwanda
Link to Colombia case studies
Colombia
Link to Malaysia case studies
Malaysia
Link to Lithuania case studies
Lithuania
Link to United States case studies
United States
Link to Indonesia case studies
Indonesia
Link to Brazil case studies
Brazil
Link to Singapore case studies
Singapore
Link to Jordan case studies
Jordan
Link to United Kingdom case studies
United Kingdom
Link to South-Korea case studies
South-Korea

Approaches

Regulatory Accelerator

An Accelerator for regulators enables partnership arrangements between innovators or fintech firms and government authorities to ‘accelerate’ growth, innovate on shared technologies, and develop use cases that are particular to that authority. They are used to improve the familiarity of the regulator with fintech products, concepts and firms: their strengths and weaknesses, their implications for financial markets, and their potential applications in inward focused operations; while giving fintech firms some insight into the emerging questions and needs central banks might have, as policymakers, regulators and operators. Accelerators adopted by public authorities commonly function by developing specific use cases that are characteristic of challenges faced by the authority, and the private sector is invited to address these use cases through the use of innovative and emerging technologies.

BenefitsRisks
1. Enables partnership arrangements between innovators or fintech firms and government authorities to ‘accelerate’ growth, innovate on shared technologies, and develop use cases that are particular to that authority1. Requires substantial, dedicated resources to work and develop Proofs of Concept with firms.
2. Allows regulators to improve familiarity with fintech products, concepts and firms by getting “their hands dirty".2. In-house knowledge to use and develop use cases is required.
3. Increased collaboration between the regulators and stakeholders to develop market solutions to financial sector challenges3. Issues of maintaining a level playing field and a transparent process
4. Assist financial authorities to regulate and supervise the marketplace more effectively and efficiently 
5. Suitable for more developed fintech markets where authorities are keen to test some of the fintech tools themselves. 

Country Examples

Link to England case studies
England

Approaches

Regulatory Reforms

Refers to the introduction of new laws or licenses— both overarching and product specific—in response to innovative firms or business models. Also potentially includes adapting, amending or creating new laws and regulations.

BenefitsRisks
1. To note that all the approaches described above can potentially result in regulatory reform.1. Introduction of regulation prior to understanding market movements might lead to inappropriately designed regulation.
2. Transformative market change might only be possible with supporting regulation to support the fintech industry.2. More time-consuming a process and might not be able to respond to rapidly changing market movements.
3. Suitable as an initial step for more rules-based regimes 
4. Provides clarity and focus and reduces the potential for creating an unlevel playing field 

Country Examples

Link to Mexico case studies
Mexico
Link to Estonia case studies
Estonia

Approaches

“Wait and See” Approach

This approach is defined by regulators observing and monitoring the trend(s) of innovation from afar before intervening where and when necessary. Over time, however, as regulators gain capacity around innovation, and technology becomes more commonly adopted by licensed entities, policymakers may incrementally change regulations.

A “wait-and-see” approach has often emerged when there is regulatory ambiguity under whose remit a particular activity falls, or a when there is a need to monitor the market and build regulator capacity prior to issuing a response. This should not be misinterpreted as a passive approach, but rather one where active learning is taking place usually during the time when the technology is still nascent and not expected to adversely impact the statutory objectives—stability, protection, integrity and/or inclusion—of the policymaker.

BenefitsRisks
1. Allows regulators to understand technology and its possible application(s) in the financial market prior to regulatory changes1. Risks around consumer protection and financial stability are high if left unhampered
2. Regulators can informally monitor trends to determine when and where formal intervention is performed/ required2. Has a short shelf life and should not be allowed to carry on indefinitely.
3. No legislative reform required; existing regulation continues to be upheld3. Needs to be carefully used for select products
 4. Regulators need to monitor the market carefully to ensure product doesn’t develop unchecked and cause impacts on the statutory objectives.

Country Examples

Link to Ireland case studies
Ireland

Approaches

“Test and Learn” Approach

This involves the creation of a custom framework for each individual business case, allowing it to function in a live environment (often with a “no objection” letter from the regulators).

The oversight undertaken by regulators is at an arm’s length and requires oversight to be conducted on the open market without a ring-fenced or controlled environment. Each application is decided on a case-by-case bases and the extent to which regulators can make use of dispensation(s) depends on their specific legislative context. The national legal mandate of a country determines the powers available to the regulator and the ability to extend dispensations with or without associated legislative action such as amendment of laws

BenefitsRisks
1. An agile approach, where regulators grant restricted licenses or partial exemptions for new-entrants or established intermediaries testing new technologies while still providing oversight1. Not designed to be used indefinitely
2. Provides an active learning environment for regulators2. Scalability is difficult for mature fintech markets due to capacity constraints on oversight
3. Sufficient data and experience for regulators to adjust regulation or apply it accordingly3. Difficult to ensure equal treatment of participants and a level playing field; competition issues may arise
4. Regulators can understand risks and observe how the market is evolving to develop a targeted regulatory strategy better suited to the innovative product and business model.4. Insufficient monitoring and oversight, or inadequate usage of dispensation can create risks around consumers or restrict innovation
5. Builds capacity through testing and evaluation which supports appropriate regulatory reform. 
6. Suitable for most fintech ecosystems and includes degree of regulatory oversight. 

Country Examples

Link to Kenya case studies
Kenya