Spain gives greenlight to the law creating a “Regulatory Sandbox”
The Spanish Council of Ministers approved the draft bill on the “digital transformation of the financial system” (the “Draft Bill”) on 22 February 2019.The Draft Bill will be introduced in the Parliament for debate. The Draft Bill aims to create legal environment which will foster digital financial innovation while protecting the consumers. Among others, it creates a “regulatory sandbox” for businesses to test out new products or services.
Background
In July 2018, following the UK’s example, the Spanish government proposed a new law to boost technological innovation in the Spanish fintech sector.
Following the Spanish government’s proposal, a public consultation was launched in respect of this new law, which concluded in September 2018.
Regulatory Sandbox
The Draft Bill creates the internationally recognised concept of a “regulatory sandbox” with the following features:
- Purpose: Conceptually similar to a children’s sandbox, a regulatory sandbox is a controlled and supervised environment where fintech or financial companies may test their new products and experiment without the risk of infringing on regulatory requirements.
- Supervision: The National Bank (Banco de España), the National Securities Market Commission (CNMV), and the Directorate-General for Insurance and Pension Funds will exercise their supervision over this regulatory sandbox.
- Eligibility criteria: To qualify for the sandbox, companies will need to apply and meet the eligibility criteria, which includes standards such as innovation through regulatory compliance, increased market efficiency, enhanced quality of or access to financial services, or better market supervision.
- Protocol: Once a company is authorised to participate in the sandbox, it will need to work with the competent regulator to implement an appropriate protocol.
- Protections: Participation in this sandbox shall ensure the protection of personal data, protection of consumers, and the prevention of money laundering and terrorist financing.
- Liability: The clients participating in the test projects will be required to give their informed consent in writing. Despite such consent, promoters will be exclusively liable for any damages suffered by the participants.
- Benefit: Those companies that have participated in the regulatory sandbox will be able to benefit from a faster authorisation procedure to fully operate.
Direct contact with the authorities
In addition to the aforementioned regulatory sandbox, the Draft Bill sets out additional measures relating to digital transformation, such as a direct communication channel between the financial authorities and the companies.
Accordingly, companies will be able to submit to the authorities their questions related to new applications, processes, products and business models.
International cooperation
The Draft Bill also sets forth an international cooperation mechanism for the Spanish authorities to be able to make arrangements with other authorities in foreign countries in the fintech sector.
Finally, the Secretariat of Treasury and International Financing (a body in the Ministry of Economy) will prepare a yearly report on the digital transformation of the financial system in Spain, including the new technological developments, the international evolution in the sector, the impact on the protection of the consumers, and the financial stability and supervision.
What happens next?
Following its approval by the Spanish Council of Ministers, the Draft Bill will now continue its legislative process. As it is a Draft Bill, it may undergo changes over this process.
In any event, thanks to these developments, Spain takes its place alongside other pioneer countries in the fintech sector.
