Regulating Innovation through Digital Platforms: The Sandbox Tool

In: European company and financial law review: ECFR, Band 19, Heft 5, S. 828-853

Abstract

Abstract

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The use of digital platforms in the financial sector requires automated processes in order to collect the large volumes of data which will allow firms to create a shared understanding around rules through technological applications. The UK Financial Conduct Authority launched innovation programmes, i. e. a regulatory sandbox, to assess technologies and expedite the delivery of fintech products. This initiative has been followed by the European Digital Finance Package, which introduced the Pilot Regime for market infrastructure based on distributed ledger technology. Albeit a laudable initiative, the EU sandbox model may face obstacles on account of the different approaches taken by Member States in relieving regulatory requirements which can create a perverse incentive to circumvent prudential rules in the context of risk assessment. This article examines the impact of sandboxes on the operation of digital platforms and considers the extent to which decision-making processes are amenable to digital treatment, and what will be the implications for the quality of regulation and the exercise of judgement by the supervisory authority. It argues that the application of regulatory sandboxes can promote more effective compliance processes, while ensuring transparency and accuracy of enforcement actions.
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