Few can overlook the enthusiasm with which young children play in sandpits at playgrounds or nurseries. And if water is at hand, even better—it’s like being at the beach. With just a shovel and, at worst, their hands, they can create castles, faces, or roads and bridges. With the same enthusiasm, the financial world, particularly in Spain, across its entire spectrum (banks, neobanks, insurers, startups, etc.), has welcomed the idea of creating a testing ground for innovation, or a regulatory sandbox. This week, the Council of Ministers approved the Draft Bill on measures for the digital transformation of the financial system, which provides for the implementation of the Spanish sandbox.
Once this project comes to fruition after parliamentary processing, Spain will join a list of some 30 countries worldwide that possess such an instrument. The international perspective available today, five years after the UK established the first sandbox, offers us a golden opportunity to ensure that the regulatory framework successfully adapts to the most successful practices. Although information on this matter is not overly abundant or specific, we already have some aspects that could be categorised as “best practices” and can contribute to the project’s success from both private and public sector viewpoints.
Firstly, as in all sandpits, there are no entry conditions; children of all backgrounds and projects of all types are welcome. Flexibility in admitting projects and the types of companies that can submit them is a key to success, as it encourages a greater diversity of projects and different technologies. The two opposing examples we know are the UK, which offers a non-coercive framework in this regard, and Australia, which predefines eligibility conditions more strictly and has greatly limited the number of projects entering the experimentation phase. Spain is starting with an approach closer to the British one, without strictly limiting entry conditions.
Secondly, the sandbox does not function on its own. It is equally important for the private sector to be able to present projects of true innovative value, and for the supervisor or regulator in charge to be involved in their monitoring. Our sandbox is not called a “regulatory” sandbox for nothing. While acknowledging the differences, it is as if nursery teachers were to join the children in the sandpit to enjoy their childlike imagination. The aim is to create a common space between supervisors and supervised entities that fosters shared learning. Eventually, this learning can be applied to business, and if necessary, supervisory rules and criteria can be reviewed in a timely manner.
The two preceding points inevitably lead to the third. The size of the sandbox is important. If the space is so small that other children step on your castle or you don’t get enough attention from adults, you become discouraged. In the financial sphere, this translates into the need to adequately resource the departments involved in the sandbox project, and equally important, to ensure that all relevant authorities for the project are involved, coordinated, and informed in some way. To the extent that new technologies break down traditional business boundaries, it is not surprising to find projects that have implications for risk, consumer protection, data protection, and anti-money laundering simultaneously, for example. From the experiences of other countries, we can indeed deduce that the relationship between the authorities involved in the sandbox and their capacity for cooperation is a factor that greatly limits the submission of innovation projects.
Finally, and we must admit that international experience sheds little light on this, the financial industry wants to turn its sand construction into a business reality when a successful case is achieved in the process. Although this seems obvious, it could be the most challenging step in the entire innovation process… imagine taking the castle home. To make this a reality, companies must be clear on how to make this transition and how to ensure compliance with conditions and guarantees for users. Once again, collaboration with authorities is fundamental in this step, not only in their role of safeguarding optimal market conditions but also in gathering lessons learned from the exercise and identifying potential barriers that prevent similar projects from becoming reality. With this, the experimentation and learning process will have come full circle, bringing the benefits of a project and a company to society as a whole.
In the coming months, we will read and write a great deal about the sandbox, and many will wonder why. For those who find this Anglicism not entirely appealing, I invite them to let their imagination wander to more evocative images or concepts that go beyond the financial sector itself. Let us return to our childhood, to a time when the whole world was yet to be discovered, and we were in a sandpit to do so.
Rocio Sanchez Barrios, Director of Public Policy at the Spanish Banking Association
