Throughout history, global legal systems have been characterized by failing to keep up with changing societies. Which is only logical, as it is not possible to create rules for something that does not exist yet.
Nonetheless, some consider that lawmakers and regulatory authorities have proven to be especially wary of the unknown. There are some solid arguments such as the increase in cybercrime, electronic fraud, and other issues that certain projects may pose. But what remains true is the fact that too much rigidity necessarily means failing to keep up with global technological and financial development. Oftentimes, over-regulation implies insurmountable obstacles for certain projects.
For that reason, the Draft Bill of measures for the digital transformation of the financial system published in 2018 is considered an innovative concept and a step forward: the controlled testing environment, better known as regulatory sandbox, which we will briefly elaborate below:
What is a regulatory sandbox?
Despite what the name may seem, it is appropriate. A sandbox is a place to test projects, play with them, and see their potential. In short, a regulatory sandbox is a space where financial and technological innovations linked to finance startups can be tested.
Once the regulator has given their approval, the project developer can test their idea in an environment safe for consumers. This will be controlled by a supervising authority. So, once the project’s suitability is certified, the developer may request permission to begin their activity.
What requirements are needed to start the activity?
The most important requirement besides an application to the General Secretariat of the Treasury and International Finance and complying with other standard requirements is: the project must “have a technology-based financial innovation and be at a sufficiently advanced stage so it can be tested.”
What is the applicable law?
The Statement of Reasons section in the Draft Bill explains, “the projects will not be subject to the specific legislation applicable to the regular provision of financial services, having to comply, in any case, with the provisions of this law and in the corresponding protocol. “It is certainly an alleviation for developers, who sometimes are burdened by all the regulations our financial system has been flooded with after 2012.
How are consumers protected?
Consumers protection is based on three main aspects:
- With personal data protection.
- With informed consent.
- With the right to withdraw.
What does it mean?
In my opinion, the creation of these regulatory sandboxes is not just a meaningless benefit for financial startups, but rather a chance our regulatory and legislative authorities are taking. In conclusion, the regulator steps aside to stand next to the entrepreneur in order to create a “facilitating law towards technological-based financial innovation.”
A newly created company has countless necessities. Dedication, good management, harmony among business partners, a solid legal basis, and access to financing are needed for the correct development of what can become a prosperous business in the future.
So, knowing that the public sector is sometimes on our side is favorable for the economy and for everyone who believe in the Spanish business fabric.