In recent times, we are meeting with various legislative initiatives linked to entrepreneurship and the digital ecosystem. Some of them intend to contribute to creating a favorable ecosystem that develops technology-based innovation, such as the recent prior consultation of the preliminary draft Law for the Promotion of the Ecosystem of Startups.
In this same framework, and more focused on the ‘fintech’ sector, last July 2018 the draft Law on Measures for the Digital Transformation of the Financial System was submitted to a public audience by the Ministry of Economy and Business.
Making it simple, this preliminary project basically aims to allow financial institutions and fintech companies the possibility of innovating and launching projects linked to financial services without having to previously obtain the licenses and regulatory authorizations that would be required for the provision of the service. Hence the name of ‘sandbox’ or test bench.
This initiative is not original, but follows the path already initiated by other financial regulators, especially in the Anglo-Saxon world, where there are already ‘sandboxes’ with a high level of success.
In parallel, these supervisors are already working on the creation of a global sandbox (the Global Financial Innovation Network, GFIN), with the participation of 12 countries -among which, unfortunately, Spain is not found-, under the leadership of the British Financial Conduct Authority.
The new regulation will not entail the modification of the current framework for the distribution of powers between authorities, so that each supervisor (Bank of Spain, National Securities Market Commission and General Directorate of Insurance and Pension Funds) will continue to act in the field of its competences, although, at the same time, it will collaborate actively within the new digital context.
Of particular interest is the ‘sandbox’ approach also from a public perspective, as a learning ground for supervisors.
The improvement of innovation is not the only objective pursued, but it is also expressly recognized the usefulness that this tool can have for supervisors to understand the functioning of innovative technologies on which they are currently poorly versed, such as artificial intelligence or Blockchain.
Thus, the ‘sandbox’ will allow supervisors to have greater proximity to new business models, applications, processes or products with an impact on the financial markets, and to have all the relevant information to know and better manage the risks that may arise. arise in this context.
It is a controlled space, that is, a safe space for the participants and without risk for the entire financial system
As we have already briefly anticipated, there are two aspects that work as a key to the vault of the Spanish ‘sandbox’. In the first place, it is a controlled space, that is, a safe space for the participants and without risk for the whole financial system.
Secondly, it will facilitate the best performance of the supervisory activity, by allowing a better knowledge of the technological-based financial innovations that place the authorities in a better position to understand the implications of digital transformation, and that will contribute from the moment of its implementation to a better control of compliance with current legislation.
The norm regulates in each of its chapters the operation of the ‘sandbox’. Thus, it begins by regulating the access regime and establishes a system for submitting projects through a single financial window.
If a sufficiently advanced project is proposed, it will receive a favorable preliminary evaluation and a protocol on the development of the tests between supervisors and promoter that will include the details of the holding of the tests and, in particular, its limited duration and scope.
Subsequently, the regime of guarantees and client protection is regulated during the realization of the tests, establishing several precautions in favor of the client, such as informed consent, the right of withdrawal by the client at any time and the responsibility of the promoter in case of patrimonial damages that are a direct consequence of the realization of the tests.
Finally, the exit regime is regulated, indicating that, depending on the results of the tests, there will be a rapid access to the activity, which implies a substantial reduction in procedures for obtaining the corresponding license for the activity.
The standard includes a direct communication channel with the supervisory authorities
As a complement to this ‘sandbox’, and also with the aim of bringing together technological promoters and supervisors, the standard includes a direct communication channel with the supervisory authorities, as well as a system for resolving written queries on aspects of regulation. and other issues that, due to their complexity, may be functioning as entry barriers for the different financial actors.
The public hearing of the text was open until September 7, 2018 and the Government is now working on the new text. The initial idea was for the law to be passed before the end of 2018, although it is foreseeable that the parliamentary situation would hinder its adoption and even make the Government consider the convenience of adopting the norm by means of a royal decree-law.
Undoubtedly, the initiative would be positive for the Spanish ‘fintech’ ecosystem and would favor innovation and the retention and attraction of talent in the Spanish market, now that other markets, such as Lithuania, are enjoying great attraction for this type of activities enterprising