Regulatory Sandboxes and Financial Inclusion
A regulatory sandbox is a framework set up by a financial sector regulator to allow small-scale, live testing of innovations by private firms in a controlled environment under the regulator’s supervision. This concept, which was developed in a time of rapid technological innovation in financial markets, is an attempt to address the frictions between regulators’ desire to encourage and enable innovation and the emphasis on regulation following the financial crisis of 2007–2008. Regulatory sandboxes may enable financial innovations that benefit excluded and underserved customers.
This paper is for financial sector regulators in emerging markets and developing economies, development agencies, and financial inclusion professionals who want to better understand regulatory sandboxes and their potential impact on financial inclusion. It is based on a combination of desk research and interviews with selected regulators, sandbox firms, supervisors, and other stakeholders. It provides an overview of the current landscape for regulatory sandboxes, analyzes potential benefits and risks of the sandbox concept in the context of financial inclusion, outlines key issues that every policymaker considering a regulatory sandbox should be aware of, and offers speculative points about future developments.