Interview | Luciano Brincat: MFSA Regulatory Sandbox, a safe testing ground for FinTech operators

In May last year, the MFSA published its FinTech strategy. One of its objectives was the launching of a Regulatory Sandbox. Could you explain what the Regulatory Sandbox is?

The FinTech Regulatory Sandbox provides a regulatory environment for FinTech operators to test their solution within the financial services market under prescribed conditions.

The Regulatory Sandbox has four objectives, with innovation being the first. We want innovation to occur within the financial services market, and the Sandbox will be an environment which provides FinTech operators with a means of testing their solution within the market.

The second objective is Sustainability, by which we mean that we want that all innovation is beneficial to the market and the ultimate consumer.

The third objective of the Sandbox is Certainty, which will enable FinTech operators to operate within the market with confidence, knowing that their innovation is not breaching any European or national law.

Knowledge-Sharing is the fourth objective. Through close collaboration with the participants, the MFSA will be in a better position to understand the solution being proposed by the participant, the innovation occurring within the financial services market, and the implications of this on our regulatory frameworks.

If we determine that the innovation being proposed in the market is not fully in line with our current requirements – and therefore if we determine that there are gaps in terms of our regulatory frameworks – the MFSA will be in a better position to understand those gaps and to develop the appropriate policy response to mitigate them.

Who would be eligible to apply to participate in the Regulatory Sandbox, and what are the MFSA’s criteria in this regard?

As the name implies, the Sandbox is open to FinTech operators, by which we mean technology-enabled financial innovation which leads to new business models, applications, processes and products which will have a material effect on the financial services market.

In this respect, the Sandbox will cater for three types of participants: FinTech service providers, FinTech suppliers, and other applicants.

By FinTech service providers, we mean those FinTech operators who are offering a FinTech solution which requires authorisation under already existing financial services legislation.

The second category, FinTech suppliers, refers to those FinTech operators offering a FinTech solution which does not require authorisation under existing financial services legislation.

The third category, other applicants, caters for those FinTech operators which, at face value, seem to be engaging in an activity which qualifies as a financial service, but whose activity does not qualify clearly under existing financial services legislation.

Interested participants must fulfil four eligibility criteria to participate in the Sandbox, these being Innovation, Need, Benefit and Readiness.

How can an eligible firm apply to test within the Sandbox, and how does it work in practice?

The Sandbox has been structured in such a way as to be open for interested participants on an ongoing basis. Therefore, anyone interested in participating within the Sandbox can apply at any time via the dedicated proposal form on the MFSA website.

The Sandbox lifecycle is divided into two phases: the pre-testing phase and the testing phase. During the pre-testing phase, the MFSA will assess the proposal, select the applicants and determine the respective testing parameters.

During the testing phase, the MFSA will monitor the progress of the participants in line with the testing parameters identified during the pre-testing phase, and determine the appropriate way forward outside of the Regulatory Sandbox.