The sandbox and digital transformation of the economy
In what has been called Industry 4.0 or the fourth industrial revolution, various factors – such as the exponential growth of automation, mass data processing and the emergence of disruptive technologies – are driving a radical change in the production, marketing and distribution of goods and services in the economy.
This process is known as digital transformation.
In the financial sector in particular digital transformation is giving rise to far-reaching changes in:
- business models
- the structure of the industry (appearance of new players)
- relationships with customers
This new digital reality poses major challenges for the authorities.
1) To assist in the digital transformation of the financial system by adapting regulations to technological developments, fostering innovation and, at the same time, ensuring:
- an adequate level of protection for financial services customers
- financial system stability and market integrity
- the fight against money laundering and terrorism financing
- a balanced competitive environment
2) To ensure that financial authorities have appropriate instruments at their disposal to continue to perform their functions optimally in the new digital environment.
In response to these challenges, financial authorities in some European countries have created what is known in the international financial world as a regulatory sandbox.
What is a regulatory sandbox?
In the field of clinical trials, a sandbox is a closed testing environment. This concept has been imported into the digital economy field.
In this context, a regulatory sandbox allows tests to be performed in a controlled environment, supervised by the competent authorities, to analyse the viability of new business models or the use of new technology in the provision of financial services.
One of the leading pioneers in this field is the United Kingdom, which has a sandbox in operation since June 2016. In Spain, the draft bill on the digital transformation of the financial system envisages the creation of a regulatory sandbox, to be developed subject to oversight by the financial supervisors (the Banco de España, the National Securities Market Commission (CNMV) and the Directorate General of Insurance and Pension Funds (DGSFP)) and coordinated by the General Secretariat of the Treasury.