Arizona recently launched the first FinTech sandbox of the United States. A FinTech sandbox is an alternative regulatory framework that allows the testing of new financial technology while still featuring regulatory control. The Office of Arizona Attorney General said that the sandbox has been built with the aim to explore different and novel ways for job opportunities and economic growth. This is the first time that such a development has taken place in the US.
Startups allowed to test on FinTech sandbox
Blockchain and crypto startups can also test their ideas using this FinTech sandbox. But the startups can only get permission if they fulfill certain criteria. Startups and distributed ledger technology (DLT) companies must come up with a new FinTech service or a product if they want to make use of the sandbox. The state of Arizona believes that the sandbox will most probably bring innovations in payment systems, investment advice or banking systems.
As mentioned in federal and state laws, services, newcomers in the crypto industry whose primary target is securities trading, who only perform deposit-taking functions and insurance products will not be allowed to use the sandbox. Generally speaking, a regulatory process takes a month or even more for getting approval and the expenses are greater.
With the FinTech sandbox, the state of Arizona will allow companies a pilot-run of their ideas with limited participants for a maximum two years. If the test emerges successful, companies can apply for a license. In the event that the products or services fail to give the desired result, the startup will have to stop offering them within the state.
About the regulatory sandbox
Whenever a company has to take a test for a product or service it has to do so keeping in mind all the rules and regulations in the financial industry. A regulatory sandbox saves companies from going through such formalities as it offers a safe space for testing out services and products. Rather it is the place where startups can try out their concepts with minimum risk of regulatory action.
Prior to the launch of a sandbox, the Office of Innovation of CFPB introduced Project Catalyst as a platform that will collaborate with the financial industry. But this project did not get much response. However, the state of Arizona is taking the FinTech sandbox project seriously.