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Regulatory Sandboxes & Consumer Protection - YouTube
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[Music]
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okay google
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what is a regulatory sandbox a
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regulatory sandbox has a new regulatory
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approach that allows live
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time restricted testing of innovations
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under a regulator's oversight
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in other words it gives businesses a
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space to play with new ideas and
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products within certain boundaries
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before they bring them to market
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since the united kingdom's inaugural
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launch of a regulatory sandbox back in
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2015
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the concept has gained traction on a
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global scale
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arizona recently adopted a statewide
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version of their own
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several other states and even the
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federal government seem likely to follow
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their lead
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but questions abound what exactly is a
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regulatory sandbox
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who decides how it is run and perhaps
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most importantly
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what are the pros and cons of
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implementing a regulatory sandbox
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so say there's a mortgage lender that
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has a whole new algorithm
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and they say we can get more people into
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houses living the american dream
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and kind of solve the housing and equity
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gap and they make
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dozens of loans that turn into hundreds
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of loans that turn into thousands of
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loans
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even if it's just limited to one state
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that's all well and good until
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the possibility that algorithm was wrong
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so then you have
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a potential ripple effect of
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foreclosures
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now you have the company that says that
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we made a mistake and it's because of
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the sandbox that would shield any type
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of
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remediation for the consumers or any
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type of liability for the company that
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made that mistake
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whereas outside of the sandbox those
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loans
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would not have been made
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[Music]
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driving the debate about whether or not
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to make use of regulatory sandboxes
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is a disagreement about the very ideas
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definition
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not to mention worth many innovative
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products are required to undergo strict
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regulatory scrutiny before being brought
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to market
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and some never make it a regulatory
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sandbox is touted as a reprieve from
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regulation
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and a catalyst for innovation but its
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value is contested
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in its simplest terms regulatory sandbox
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is really
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a safe space by which companies
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startups mature growth firms to
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financial
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services incumbents are able to test
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their innovative product or service
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in a limited setting so i think
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regulatory sandboxes
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are critical at this point because i
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think we're we're kind of in an
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international race right now
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our company is going to go abroad and
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you know only do business
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in certain areas where you know their
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regulatory structure is allowing that to
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flourish or is the u.s going to be part
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of the discussion
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part of the trouble with defining a
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regulatory sandbox is that it can mean
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so many different things and that it has
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different iterations across the world
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on the state level on the federal level
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they're so new that it's hard to make
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any conclusions of the end products of
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the sandbox and how they can contribute
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to the greater economy in the uk in 2015
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that was the only country that had a
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regulatory sandbox two years later
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17 countries had them today we have more
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than 50 countries that are looking at
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implementing or have already implemented
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a regulatory sandbox it's pivotal that
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the u.s
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presents a kind of innovative front or
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else we're not going to be writing the
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rules of the road if it's justifying
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market participants getting around
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reasonable consumer oversight
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protections then that's not only
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problematic but it
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sets a stage for a dangerous narrative
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that somehow
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civil rights consumer protection laws
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and oversight
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are in the way of true financial
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innovation to solve
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uh you know market inequities and that's
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one of the biggest concerns we have in
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defining a sandbox in a broad term
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due to the intangible nature of
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regulatory sandboxes
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experts are divided about how they
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should be implemented who should oversee
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them
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and even whether they should exist in
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the first place
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as a relatively new idea the available
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data on these sandboxes are limited and
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open to interpretation
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because of the lack of consensus
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measuring the overall impact of
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launching a regulatory sandbox at any
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level
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is challenging
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i mean i think the first question that
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regulators really need to ask before
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they go into sandboxes is
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do we even need a sandbox right and then
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the second question is
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why do we need a sandbox right what are
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we trying to solve for
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we would be proponents of handling at
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the federal level
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you know we're not in a state or local
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based economy
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we're in a very international integrated
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global economy we should be thinking
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about you know how can the uk
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and the us work together to bring
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products to market
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laws like anti-discrimination laws like
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the equal credit opportunity act
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uh the community reinvestment act all
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passed in the civil rights era
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they were in direct response to uh
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market failures which is a euphemism for
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uh discrimination and racism in the
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market both so when we talk about these
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laws in the context of a regulatory
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sandbox
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it's especially problematic when they're
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reframed as
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obstacles to progress and we need to
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make sure that we're keeping up with the
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different innovations and the different
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tools that are at our disposal
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you know one of the things that is a
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significant problem for me on the
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regulatory sandbox front is that
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you know there's a recent un report that
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came out on regulatory sandboxes
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among other issues related to fintech
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and what they found was that of the
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sandboxes that they did a deeper dive
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analysis on
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nearly a quarter of them uh did not
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conduct a feasibility test
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on whether or not they should have a
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sandbox and whether or not this is the
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right environment for a sandbox right
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that to me shows there's a lot of
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competition in this space there's a lot
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of
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hey let's just put out a press release
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and saying we have a sandbox
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without actually understanding do we
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really need a sandbox and then the
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actual requirements that go into a
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sandbox
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i think that there's a lot of different
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sides to the debate i think that there's
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a lot of concern
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um you know that a sandbox means that
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companies can run amok and just kind of
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ignore certain laws
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that is definitely not the case and
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that's never what we've been advocating
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for
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so you know a regulator is not just
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going to
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you know let a company kind of run amok
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they're going to have solid guard rails
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and there's always
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enforcement opportunities and there's
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private rights of action i mean the u.s
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is a very very robust
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regulatory environment you know you get
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the engagement right and you get the the
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one-on-one oftentimes communication you
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get the oversight from a regulator and
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you get the understanding of
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you know what regulatory regimes within
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that country apply to your product and
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service
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it gives kind of real-time data and
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insights to a regulatory
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authority that may never have been able
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to access such information
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we're waiting for the cfpb to come out
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with their
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their idea of what a sandbox would be
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but regardless
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i think it is definitely something that
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has you know
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the strong protections both investor and
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consumer protections in place
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and then guard rails around it to ensure
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that there isn't any harm
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happening to the different populations
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success metrics that we've been seeing
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in the regulatory sandbox space uh you
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know time to to entry in the market
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right that's a that's a big one you know
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through traditional process can take
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months if not years that are a market
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and you know the second thing that we've
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seen in terms of successes
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or have you been able to raise capital
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right and what we've seen from this is
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that a number of companies have raised
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capital during the testing period the
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idea that kind of the up and running
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sandboxes on the global scale
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are somehow models that we can readily
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take on to solve uh implementation
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issues
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has a lot of problems it really is an
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apples to oranges comparison
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the structure of the us regulatory
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system is vastly different
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from the uk or singapore so to use those
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sandboxes as a model
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that can just be taken off the shelf and
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implemented is a bit
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idealistic back in the 90s when the
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internet was created
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we took kind of a wait and see approach
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and that's why it is what it is today
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and so i think that if we quash this
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innovation
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um in the banking space before we
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understand where it's going to go or
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you know in the blockchain space where
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there's tons of different uses from
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food supply to agriculture um you know
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to food safety
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i think that you know we're doing
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ourselves a disservice both from an
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american competitive
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standpoint and from um you know being
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able to see what these
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innovations are actually going to come
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together there might need to be some
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reform or there might need to be some
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strengthening
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but we have the tools to do this in a
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transparent and equitable and
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multi-stakeholder way
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the interplay between innovation and
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consumer protection has always been
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rocky
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yet both continue to be crucial focuses
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for regulators
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while some are convinced of the benefits
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others remain concerned and ask
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what is the real cost of a regulatory
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sandbox
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we have a structure in place and i think
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before
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we can just summarily dismiss it and say
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no actually what we need is a sandbox
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there's a really big assumption there
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that i think has
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gone unquestioned in the broader
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narrative
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and i don't think there's been enough of
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a robust discussion
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in that space to really kind of double
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down and say
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we need the sandbox to be competitive we
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need the sandbox
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to solve our financial inclusion issue
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we need the sandbox to drive
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uh or increase the number of banked
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individuals so
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i think um the jury's still out on that
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premise
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i think that it's going to be better for
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consumers if we all work together on
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this
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and that you know first and foremost
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consumer protection
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and then also working with the companies
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to see you know
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what are some innovations that are going
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to make consumers lives better
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you know possibly make them more
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financially literate
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save more you know have better
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disclosures a lot of companies are
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thinking of innovative ways that may not
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fit within the
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legal construct currently that is going
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to actually be better for consumers
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sandboxes are just one tool in the
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regulatory toolkit there's all sorts of
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other tools
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you know guidance waivers you know no
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action letters
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now we've seen the creation of
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innovation offices uh
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testing in pilots was just a bit
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different from the actual sandbox itself
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you know so that question of do we need
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a sandbox i think
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regulators need to kind of go back to
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the drawing board and say well here's
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what we have here's what we're missing
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and does the sandbox kind of fit
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to address those challenges of mars so
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innovation in the financial service
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marketplace is not only unavoidable
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we're already in the middle of it
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but when it comes to financial
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innovation nobody's out there saying we
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need to turn the clock back
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and go back to writing checks sending
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things through the mail
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sending faxes uh to your broker to make
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a stock purchase
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the real question is is how is that
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innovation
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interacting with current civil rights
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and consumer protection laws and what
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are the structures that allow
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that interaction to really produce
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effective and strong consumer protection
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regulation but also
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encourage innovation and the kind of
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market evolution
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the conversation between regulators and
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the regulated is already
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occurring and i've been very excited to
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see that so a couple years ago working
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on this
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there was just huge question marks and
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there were just buzz words being thrown
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around now i think that companies are
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feeling comfortable enough
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to go into the regulator we're still
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early on in the in the
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sandbox process or sandbox regimes that
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are being
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implemented around the world right i
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mean it's still to be determined whether
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you know these sandboxes ultimately
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offer some really interesting
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success stories so again it's just it's
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we're still very early on at this stage
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it should be an ongoing dialogue between
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the two
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you know and if if we figure out that an
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issue
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or an idea is not viable um you know
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then that's one thing but then
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working with the regulator you kind of
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find the best regulatory tool
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to get where you want to go that can you
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know better serve consumers
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you
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