Following in the UK's footsteps, which started a regulatory sandbox in 2016, Spain is now also on the brink of launching its own project.

A regulatory sandbox allows businesses to test innovative products, services, business models and delivery mechanisms in a live environment while ensuring that consumers are appropriately protected.

Fostering competition and growth

The Spanish financial services regulator, the "Secretaría de Estado del Tesoro", is currently drafting the regulation to establish a regulatory sandbox in Spain.

The Madrid office of Hogan Lovells has worked jointly with the Spanish FinTech and InsurTech Association (AEFI) to establish the sandbox, co-operating with the regulator to draft an efficient and appropriate law.

Like its British counterpart, the aim of the Spanish regulatory sandbox is to foster competition and growth in financial services by supporting small and large businesses that are developing products and services that could improve customers' experiences and outcomes.

In view of this, HL Madrid and the AEFI have created a set of principles for the implementation of the sandbox in Spain, which explains the project.

This was published in February 2018.

The main concept behind the sandbox is the creation of a controlled and secure legal space where innovative companies and entrepreneurs can test their ideas, without threat of regulatory penalty.

Many benefits can be derived from a sandbox, including:

  1. access to new investments in Spain; 
  2. the promotion of competitiveness and employment; 
  3. better access to finance for firms seeking to raise funding for new products and services; and
  4. consumer protection.

The UK sandbox has been in place for two years and the results so far have been extremely encouraging, so implementing a similar project in Spain would be a positive step for Continental Europe.

Three regulators

The framework states that the Spanish sandbox must be created through a Royal Decree, giving wide powers to the three relevant regulators, namely: Banco de España (for banking matters), CNMV (for financial services in general) and DGSFP (insurance specialties).

These public institutions will then be able to control, execute and promote the initiative.

One of the questions that frequently arises, however, is whether financing will be made available to the three regulators to enable them to perform their new functions.

The set of principles also state that, in order to function usefully, the sandbox process must provide innovating companies with:

  • A limited exemption from some of the initial legal requirements (eg when setting up an insurance company) to facilitate the development of their new models. 
  • The ability to develop unregulated products in the Spanish market, eg introducing an initial coin offering.

Challenge and opportunity

To conclude, the implementation of a sandbox in Spain represents a great regulatory challenge (and opportunity) for Fintechs and Insurtechs (as well as Proptechs and Regtechs).

We look forward to the publication of the implementing regulation, which is expected before the end of the summer.

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