FinTech
Regulatory Sandbox

A regulatory environment where FinTech operators may test their innovation for a specified period of time within the financial services sector under certain prescribed conditions.

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“Supported by technological advances in computing power, connectivity and knowledge dissemination, FinTech solutions are proposing a paradigm shift in the way financial services providers service their customers.”

Joseph Cuschieri
CEO | MFSA
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FinTech Regulatory Sandbox

Regulatory Sandbox
General Overview

The Sandbox is a regulatory environment, where FinTech operators may test their innovation for a specified period of time within the financial services sectors. The aim is to support sustainable financial innovation, ensure regulatory certainty and promote knowledge sharing. These are the objectives of the Regulatory Sandbox.

Innovation

The Sandbox will provide a regulatory environment allowing technologically enabled financial innovation – new business models, applications, processes or products – to operate within the financial services market.

Sustainability

Through close dialogue, the MFSA will be monitoring Participants to observe whether their innovations truly offer value to the consumer and the wider financial services sector, whilst ensuring consumer/investor protection, market integrity and financial soundness.

Certainty

The Sandbox will enhance legal certainty within the financial services market as it provides both the Participants and the MFSA with the space to determine the appropriate requirements under the applicable regulatory frameworks.

Knowledge

Through collaboration with Participants, the MFSA will have the opportunity to enhance its capacity in assessing the regulatory implications and gaps of such solutions, and identify the appropriate response as necessary.

For a detailed understanding of the Regulatory Sandbox..

Regulatory Sandbox
Scope and Eligibility Criteria

The Sandbox will be applicable to all FinTech Service Providers and FinTech Suppliers, and other applicants that do not clearly fall within the scope of any financial services legislation currently in force in Malta. Furthermore, to be eligible to participate, the Applicant must meet the following eligibility criteria.

“The Solution shall be (i) technology-enabled and (ii) innovative, resulting in new business models, applications, processes or products within the financial services sector.”

Considerations

  • The Solution must clearly indicate that it leverages existing or emerging technology/ies in an innovative way to provide or support the provision of financial services.
  • The Applicant must demonstrate, through market research or other means, that their Solution is different from current solutions.
  • The Applicant must demonstrate that the Solution does not solely re-brand but scale-up and/or re-engineer existing business models, applications, processes or products within the financial services market.
  • The MFSA has encountered few or no comparable solutions.

“There exists a genuine need and objective for testing the Solution within a controlled environment in order to identify any inherent regulatory gaps, challenges and risks.”

Considerations

  • The Applicant must demonstrate that the Regulatory Sandbox is an appropriate regulatory approach in which they can engage with the Authority and release the Solution within the financial services market.
  • The Applicant must demonstrate well defined testing objectives and performance indicators.
  • The Applicant must demonstrate that the Sandbox Regulatory Tools will be required for the Solution to function with existing financial services legislations.
  • The Applicant must demonstrate that the Sandbox Lifecycle is more beneficial when compared to the traditional authorisation process with respect to the proposed Solution.
  • The MFSA is of the understanding that the Sandbox will be beneficial for the Solution being tested and that it is the appropriate regulatory approach to assess the Solution’s risks, challenges and potential regulatory and supervisory gaps.

“The Solution shall offer identifiable direct or indirect benefit/s to consumers of financial services and the wider financial services sector.”

Considerations

  • Proposed Solution aims to provide significant increase in efficiency and user experience, and a decrease in cost compared to current products on the market.
  • The Applicant must demonstrate clearly that the proposed Solution is beneficial to consumers and the wider financial services market and that they have accounted for potential negative externalities.
  • The Applicant must present a thought-out plan accounting for possible risks and demonstrates that they have a suitable mitigation plan which ensures consumer protection, market integrity and financial soundness.
  • The Applicant must demonstrate that the proposed Solution can be discontinued with minimal impact to consumers and the financial services market.
  • The Applicant must demonstrate that the proposed Solution (i) captures an otherwise undeserved niche market; (ii) increases financial inclusion; or (iii) enhances competitiveness of the financial services market.

“The Solution is ready for testing within the Sandbox and that the Applicant shall have adequate resources to operate throughout the duration of the Sandbox.”

Considerations

  • The Solution clearly indicates that it leverages existing or emerging technology/ies in an innovative way to provide or support the provision of financial services.
  • The Applicant must demonstrate, through market research or other means, that their Solution is different from current solutions.
  • The Applicant must demonstrate that its Solution does not solely re-brand but scale-up and/or re-engineer existing business models, applications, processes or products within the financial services market.
  • The MFSA has encountered few or no comparable solutions.

Regulatory Sandbox
Lifecycle stages

The Sandbox will be open to Applicants on an ongoing basis. The MFSA may, also at its discretion, open the Sandbox for specific purposes cohorts, which would cater for specific solutions or challenges proposed by the Authority or depending on industry feedback

The Applicant shall submit its Proposal to the Authority through the online proposal form.

The Authority shall assign a Participant Development Lead (‘PDL’) to an Applicant, who shall act as a dedicated contact point between the Applicant and the MFSA and who shall provide the Applicant with the necessary regulatory guidance throughout its Sandbox lifecycle.

Upon receipt of the Proposal the Authority may, at its discretion, schedule a preliminary meeting with the Applicant.

The Authority shall determine whether the Applicant falls within the scope and whether its Solution meets the eligibility criteria. In turn, the Applicant shall be notified whether they may proceed to the next stage or not.

Selected Applicants which are determined as FinTech Financial Services Providers require authorisation by the Authority under the applicable law & satisfy the requirements as set out in the Rule 3.

Selected Applicants which are determined as (i) FinTech Supplier or (ii) Other Applicants, will be required to satisfy the requirements as set out in the Rule 3.

The Applicant may proceed to the Testing Phase only upon satisfaction of the requirements as set out in Section 4 of Rule 3

Upon successful completion of the Application Stage, the Participant shall commence the Testing Phase. The Participant shall co-operate in an open and honest manner with the MFSA and inform it promptly of any relevant information. The Participant shall take reasonable steps to ensure continuity and regularity in the delivery of its Solution.

The Participant shall be required to submit to the Authority a report outlining the performance of its Solution on the basis of the testing objective/s and performance measure/s, together with its intended Exit Strategy as agreed upon with the Authority during the Application Stage.

The Authority will determine the appropriate exit strategy to be implemented.

The Participant will then, on the basis of the decision of the Authority, either continue to operate within the Sandbox or implement the appropriate exit strategy which would either entail discontinuing the Solution or continuing with his activity outside the Sandbox.

Regulatory Sandbox
Online Proposal Form

The Applicant shall submit its Proposal to the Authority through the online proposal form which will be considered by the Authority during Selection Stage in order to determine whether the Applicant falls within the scope and whether the Applicant and its Solution meet the requirements and eligibility criteria

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