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What is a sandbox and how does it work?

29 November 2018

You’ve probably heard of regulatory sandboxes.

Literally, a sandbox is the place where children play and experience. Today, the meaning of this word has evolved:

In the context of web development, a sandbox is a closed environment that allows you to isolate part of the code to test changes.

In the area of fintech, a sandbox is a testing ground, supervised by regulatory institutions, where companies can test their products and services with partial or total exemption from some rules and the commitment of regulators that there will be no sanctions against participants, if they meet certain requirements. The regulatory sandbox has several objectives:

– To accommodate the intensive pace of growth of fintechs companies to comply with regulations;
– Create a space for innovation for emerging companies that might have been left out due to a rigid regulatory framework;
– Allow institutions to have a better knowledge of fintech products and services and then regulate and maintain consumer protection.

The idea of the regulatory sandbox was born in the United Kingdom, in 2015, when the Financial Conduct Authority, the British financial regulator, promoted the implementation of this regulatory framework to encourage competition and improve the supply of financial products available to consumers. Since then, other countries have implemented it: Australia, Hong Kong, Korea, Holland, Singapore or Switzerland are the good students in terms of regulatory innovation and have their own sandbox.

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