The Malta Financial Services Authority (the “MFSA”) has recently published a Consultation Document on the ‘Regulatory Sandbox’, which will provide the opportunity for its participants to test the commercial and regulatory viability of their innovations for a specified period of time, and in a fully functional financial services environment. The MFSA will constantly monitor these participants who will operate under a set of conditions and limitations, in order to contain any risks to the said consumers and the financial system.
Such Regulatory Sandboxes have already been established recently in a number of jurisdictions including the UK, and results were very favourable according to the respective national competent Authorities. Some advantages of the Sandbox include the facilitation of innovation, ensuring effective investor and consumer protection, enhancing firm’s understanding of regulatory expectations as well as knowledge sharing.
The Sandbox will be useful for both established incumbent financial services providers and new entrants, including start-ups, scale ups and technology firms. In fact, it is being proposed that the Regulatory Sandbox will be open to all FinTechs which offer product, process and institutional innovation.
The Sandbox Lifecycle will very likely consist of six stages from the ‘Proposal Stage’ up to the ‘Sandbox Exit Stage’, taking approximately 14 months from beginning to end. It is only proposals which are ‘innovative’ with a genuine ‘need for testing’ which will be accepted. Additionally, the applicant should have clear objectives in mind to demonstrate that the project itself is truly ready to be tested within the Sandbox. Finally, the proposed solution should offer an identifiable and a benefit whether direct or indirect to the consumer.
At the end of the testing period, the participant will initiate its transition outside the Sandbox, depending on the test outcomes of the Licence, which varies from a complete discontinuation of the financial innovation through the revocation of the provisional authorisation and expiration of the Sandbox Licence, to a continuation outside the Regulatory Sandbox without restrictions through the granting of applicable authorisation. There are also a other possibilities depending on the final results.
For further information on how the proposed Regulatory Sandbox will work, please do not hesitate to speak to us.