Sandbox Games for RegTech

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By FINTECH Books Contributor, Dominik Witz
Follow: @dominik_witz 

Most banks show a lot of interest in RegTech, but also a considerable amount of scepticism. RegTech is certainly expected to add value in supporting existing processes, but not likely to fully substitute them because of their novelty and complexity. For the breakthrough of RegTech, testing and validation in a protected environment, without affecting decisions and reporting on real risks, is necessary. This is owed to the fact that auditors or supervisory authorities can better understand conventional, analogous processes and hence validate compliance with regulatory requirements.

Numerous regulators have introduced regulatory sandboxes in recent time.This aims at demonstrating that RegTech solutions are at least as effective as traditional compliance processes with simultaneously higher levels of efficiency.
In essence, under certain conditions new business models are exempt from licensing requirements in order to be tested in practice. Swiss regulators presented the basic principles of their regulatory sandbox in fall 2016, and the details will be announced in February 2017 and submitted to the financial industry for public consultation.

Under Swiss regulation, technological solutions which support banks in complying with regulatory requirements are not subject to authorisation. Despite the lack of authorisation, supervisory authorities are expected to closely monitor the participants of the regulatory sandbox, amongst others to gain experience with new business models.

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