What is the Regulatory Sandbox for the FinTech in Spain, and how will it work?

What is a Regulatory Sandbox?

A Regulatory Sandbox is a controlled test setting with a limited duration and a specific objective, which enables companies with innovative ideas to test out their new products and services under the supervision of the legislator.

What is the Regulatory Sandbox for the FinTech in Spain?

It is a setting regulated by the 7/2020 Spanish Act for the Digital Transformation of the Finance System, which entered into force on 15th November 2020. Overseen by the Bank of Spain, the CNMV (Stock Market Spanish Commission , and the Spanish Directorate General for Insurance and Pension Funds, it will enable companies to validate their FinTech products and services before releasing them onto the market.

Whilst the project is participating in Sandbox, the supervisors will analyse its feasibility, and the companies will have access to a direct communication channel to the supervisors to solve any doubts they have about the application of the sectoral regulation.

How will the Regulatory Sandbox work for FinTech in Spain?

With the entry into force of the regulation, a month-long time frame has been granted to the Spanish Directorate General of the Treasury (which expires on 15th December) to activate a request model via the electronic headquarters and to establish the time frame for presenting requests.

The D.G. of the Treasury will send each project received to the corresponding supervising entity or entities, which will respond within the time frame of a month, indicating whether the project is assessable.

In the event that the project is assessable, a Commission will be notified, which will be created specifically for the coordination of the Sandbox, and in the time frame of three months, the requesting company and the supervising entity/entities will subscribe to a protocol which will establish all the rules and conditions for developing the trial: communication channels, implementation times, follow-up methods, resources which the requesting company must have available, securities that must be provided, confidentiality policy, etc.

During the trial phase, the regulators will be in charge of gathering information and performing inspections to establish the feasibility of the project. In turn, participants will be able to make any consultations they deem necessary regarding legal and regulatory aspects that affect them.

Even though the projects are not legally bound to the specific legislation applicable to financial service provision, they must always comply with personal data protection regulations, the protection of financial service users, and the prevention of money laundering and terrorism financing.

It is important to highlight that overcoming the trial phase in the Sandbox does not imply the automatic authorisation of the tested product, but the option is considered (not confirmed) of enabling an access gateway to the activity, which would imply a simplification of legal and regulatory processes to obtain the relevant administrative authorisation.

What conditions must projects meet in order to participate in the Sandbox?

Projects should be at a sufficiently advanced phase of development to perform trials with real users and should display innovation that could lead to new business models, applications, processes, products or services, that contribute added value in aspects that span from improving regulatory compliance, or clientele protection instruments, to increasing efficiency and improving financial service provision.

Specifically, they should demonstrate potential usefulness or added value in at least one of the following aspects:

1. Facilitating regulatory compliance by improving or standardising processes or other instruments;
2. Entailing an eventual benefit for users of financial services in terms of reducing costs, improving quality or access conditions, and the availability of financial service provision, or increasing clientele protection;
3. Increasing the efficiency of entities or markets; or,
4. Providing mechanisms to improve the regulation or the best enforcement of financial supervision.

Who can request Sandbox participation?

The request can be made individually or collectively by any natural or legal person, including technological companies, financial entities, credit administrators, interest representative associations, public or private research centres, and any other interested parties.

How can Izertis help in Regulatory Sandbox projects?

At Izertis we can help support you during the different project development phases:

In the embryonic phase, we can apply Design Thinking techniques for the co-creation of products and services.

During the project development, our engineering team can support you with the technology and programming language best suited to your project.

Finally, during the trial phase in the Sandbox, we can support you in constructing the request, in communicating with the regulator, and in resolving technical and legal problems.

At Izertis we can resolve your queries. If you have any questions, get in touch with us.