Regulatory Sandbox
A controlled testing area for technological innovation projects.
In order to strongly overcome the social, economic and social crisis resulting from the COVID 19 pandemic we are experiencing, which has had a major impact on all market segments, and especially on small and medium-sized enterprises, micro-enterprises and start-ups, which have feared for their existence, and in many cases have disappeared, the regulatory environment needs to be competitive, effective, efficient, coherent, predictable, innovative, sustainable, resilient and honest. That is why we need tested evidence to protect us as citizens and as entrepreneurs in a single market of conscious capitalism.
On 13 November, Law 7/2020 for the digital transformation of the financial system was published in the Official State Gazette, which aims to ensure that the financial authorities have the appropriate instruments to continue to perform their functions optimally in the new digital context, and to facilitate the innovative process in order to achieve a more equitable development through better access to financing for the different productive sectors and the attraction of talent in a highly competitive international technological environment.
A central part of the Law regulates the Regulatory Sandbox, which allows technological innovation projects to be implemented in the financial system in full compliance with the legal and supervisory framework.
Access to the controlled test area as part of a pilot project does not under any circumstances imply authorisation to carry out a reserved activity or to provide services for an indefinite period of time, and must comply in each case with this Law and the corresponding test protocol.
Thus, any natural or legal person, including technology companies, financial institutions, credit administrators, associations representing interests, public or private research centres and any other interested party, may access the controlled test area if they have a sufficiently advanced project to be tested, understood as a prototype that offers a minimum functionality to prove its usefulness and enable its future viability, as well as providing potential usefulness or added value over existing uses in at least one of the following aspects:
- Facilitating regulatory compliance by improving or standardising processes or other instruments;
- Eventual benefit to users of financial services in terms of reduced costs, improved quality or conditions of access and availability of financial service provision, or increased customer protection;
- Increasing the efficiency of institutions or markets; or,
- Providing mechanisms for better regulation or better exercise of financial supervision.
Applications for access, on a six-monthly basis, shall be submitted to the electronic headquarters of the General Secretariat of the Treasury and International Finance, and shall be accompanied by a justification report explaining the project. Once the application period has closed, the project will be assessed by the competent supervisory authorities and a reasoned report with a favourable or unfavourable rating will be sent to the General Secretariat of the Treasury and International Finance, with a list of those that provide added value over existing uses, for resolution.
When a project receives a favourable prior assessment, a testing protocol will be signed between the promoter and the authority to establish the conditions and rules to which the pilot project will be subject and in which the tests will be carried out, in order to establish all the necessary precautions in each test to protect the participants that is proportional to the level of risk of the project and to ensure that the tests do not affect financial stability, the integrity of the financial markets or third parties not participating in the tests.
Once the test protocol has been approved, the sponsor shall proceed to obtain the informed consent of the participants and to activate the envisaged system of guarantees and indemnities. Once these points have been accredited to the supervisory authority, the tests comprising the pilot project may commence under the terms of the protocol and in accordance with the Law.
Once the tests have been completed, the promoter will draw up a report evaluating the results of the tests and the pilot project as a whole and will send it to the supervisory authority, with the possibility of requesting additional or complementary tests if deemed appropriate.
The authority responsible for monitoring the tests shall draw up a conclusions document on the development and results.
Upon completion of the pilot project or during its development, the sponsor may request authorisation to start the activity, if not already available, or to extend the activity.
AddVANTE advises on the digital development of financial environments for innovative companies, in which technology plays a key role. Thus, environments in which blockchain, artificial intelligence, data mining, process automation and business strategy will be decisive in the coming times, our clients will be able to count on experienced support in regulatory aspects of the financial market and in the strategic design of the implementation of exponential disruptive solutions, which will help them to take into account data and decisive elements in order to contribute to the process of project configuration, monitoring, control and implementation of the pilot test in the market with maximum guarantees of success.
In short, the necessary regulatory framework has been created to allow testing, within a controlled environment, of technological innovation pilot projects in the financial field. Now is the time to take advantage of this opportunity and AddVANTE can help you.
