Sandbox Boundaries

Around the world, subnational and national regulatory sandboxes are being adopted in an effort to promote fintech innovation. These regulatory sandboxes seek to achieve this by rolling back some of the consumer protection and prudential regulations that would otherwise apply to the firms trialing their financial products and services in the sandbox. While sacrificing such protections in order to promote innovation is problematic, such sacrifice may nonetheless be justifiable if, by working with innovators in the sandbox, regulators are educated about new technologies in a way that enhances their ability to effectively promote consumer protection and financial stability in other contexts. However, the market for fintech products and services transcends national and subnational borders, and this Essay predicts that as competition amongst countries for fintech business intensifies, the phenomena of regulatory arbitrage, race to the bottom, and coordination problems are likely to drive the regulatory sandbox model towards further deregulation, and disincentivize vital information sharing amongst financial regulators about new technologies. By examining the case studies of the regulatory sandboxes adopted by Arizona and the Consumer Financial Protection Bureau, as well as the proposals for transnational cooperation in the form of the Global Financial Innovation Network, this Essay suggests reason to be pessimistic about the prognosis for regulatory sandboxes in general, and information sharing across sandbox boundaries in particular