Key Takeaways:
- Regulators are tasked with preserving stability and ensuring compliance to regulations. Innovative fintech solutions make both challenging.
- The regulatory sandbox platform as a technology solution allows space for both needs (compliance and innovation) to be met.
- Regulators can use the sandbox platform to safely assess new products and tech with data while in market
As a central bank, between the ever-increasing number of new fintech solutions and paper-heavy processes, the task of creating a new regulation framework for each new financial innovation seems Herculean.
Meanwhile, new fintechs come along to tell you that they have software or a platform that will streamline finance, bring inclusion to new customers and even accomplish world peace. Who could say no to all of that? However, even if you want to say yes, it takes a long time to put a new framework in place.
Central banks are most concerned with stability and minimizing or eliminating risk that can destabilize their financial markets, which are now being taken over by lines of code and algorithms.
Working between stability and innovation is a critical problem all regulators and fintech innovators are navigating through, and it is painful for all involved. How can central banks, financial regulators and financial service providers collaborate to maintain stability while actively enabling a regulatory environment for innovation to strive?
From PDF to platform, a regulatory sandbox can provide that balance of compliance and innovation.
EMTECH’s Digital Regulatory Sandbox™ was designed to help central banks, financial regulators and financial services providers safely accelerate innovation to market. It takes the traditional central bank policy-based approach to a sandbox and digitizes it with standard business flows (account creation, submission, multi party reviews, virtual collaboration tools, and more) and standard Application Programming Interface (APIs) for embedded and seamless regulatory reporting near real time.
Our solution not only directly enables a central bank to use technology to operationalize their sandbox policies, but also everages open banking standards to define key data that can be shared from the FSP to the central bank or a financial regulators (i.e. Securities and Exchange Commission)
Let’s take a look at how our Digital Regulatory Sandbox Platform helps regulators through the adoption process.
- Define Your Sandbox Framework
While many regulations are universal, central banks and financial regulators may configure their frameworks to fit the specific needs of their jurisdiction. Before assessing new fintech solutions going to market or weaving in a new regulation for yet to be in market solutions, regulators can set up their sandbox framework that establishes their testing objectives.
This setup is vital to testing real-world conditions and gathering data that may show potential risks or (on the positive side) a successful implementation.
- Onboard The Platform
In order to enable a seamless engagement from the FSPs wanting to launch innovative services, the central bank can adopt the EMTECH platform to manage all the sandbox applications, internal multi-department reviews and decision making flows. In addition to the paperless process, central banks get full visibility to decision process, timing and real time status of an application.
To address the time-consuming process of following up for clarifications, the platform offers collaboration tools for ease of communication between a central bank and a FSP.
Once a FSP is approved to go to market under “Sandbox Approval,” we have pre-built, developer-friendly APIs for various financial services that haven’t been regulated for them to connect into. This is how they share data that is then visualized on various dashboards for subjects like risk, performance or security.
This is an all in one digital platform for a central bank to use as part of their innovation and transformation strategies.
- Detect, analyze and mitigate risks with real data
The real power of digitizing this process comes from data analysis. EMTECH’s Digital Regulatory Sandbox™ comes with pre-built APIs to gather near real-time data so regulators can detect risk early and efficiently. From there, regulators can make adjustments or point out gaps to FSPss.
The data also allows for trusted visibility and supervision on the regulator’s part. By adopting such a technology, a central bank makes it easier for tech-driven FSPs to understand regulatory requirements. On the flip side, the data, when presented clearly, gives regulators the power to understand the nuances that technology introduces into a particular financial service.
- The secret sauce is collaboration
The working relationship between a fintech company and regulators can be plagued with lots of starts and stops. Developers may require the regulator’s time to understand the implications of current regulations. They also need regulators to review what’s been coded to make sure it’s compliant and the API is ready for market.
On the other hand, it’s not the regulator’s responsibility to help the developer. That’s what makes this solution such a powerful tool when deployed by a central bank or financial regulator. It unlocks unprecedented value for both the central bank and for the FSPs.
The regulatory sandbox platform was designed with regulators in mind to help them assess new financial technology solutions faster and new regulations needed.
Adopting new technology can be unfamiliar territory for many regulators. It’s filled with buzzwords that conflict with their mandate. Where tech is focused on speed, experimentation and innovation, central banks exist to maintain stability and mitigate risk in the financial market.
To prepare banks and FSPs for a new technologically-focused era of banking, regulators need to be open and their frameworks need to allow for new regulations, products and apps to be grafted in. They play a key enabling role, and with the right regulatory sandbox, regulators can:
- Adopt innovation that inspires more financial inclusion and resilience of their financial markets
- Assess fintechs to make sure they can meet regulatory requirements.
- Foster collaboration while maintaining their independence
- Build a regulatory frameworks for the post sandbox stage that are backed by data
- By partnering with EMTECH, Give fintechs a platform to receive feedback and understand regulatory requirements and be ready for regulatory review. See app.emtech.com
EMTECH’s sandbox is more than a sleek online portal, it’s a true meeting of minds and purposes. Backed by data, built for efficiency and supportive of regulators and fintechs simultaneously, it can become your institution’s best tool to leapfrog into the new (and quickly-evolving) world of fintech.If you are central bank or regulators, – request a Demo at sales@emtech.com or emtech.com, If you are a FSP to explore sandbox requirements, visit app.emtech.com
