Sandbox Boundaries

Hilary J. Allen · 22 Vand. J. Ent. & Tech. 299

Abstract

Around the world, subnational and national regulatory sandboxes are being adopted in an effort to promote fintech innovation. These regulatory sandboxes seek to do so by rolling back some of the consumer protection and prudential regulations that would otherwise apply to 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 Article predicts that as competition among countries for fintech business intensifies, the phenomena of regulatory arbitrage and race to the bottom are likely to drive the regulatory sandbox model toward further deregulation and disincentivize vital information sharing among financial regulators about new technologies. After examining 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 Article suggests that there is reason to be pessimistic about regulatory sandboxes in general and about information sharing across sandbox boundaries in particular.