Is there a “sandbox” or “license light” for specific activities?

Banking & Finance (2nd edition)

Israel Small Flag Israel

Israeli companies play significant role in fintech, and Israeli regulators acknowledge the importance of Fintech and innovation for the banking and finance industry. Not
Being a fintech supporter, on January 2018 the Israeli Government adopted a resolution with regard to the establishment of an experimental environment for fintech companies. In accordance with the resolution an inter-ministerial team was established for the examination of a regulatory adjusted environment for fintech companies with respect to the rendering of various financial services, e.g. credit extension, payments, settlement, discretionary investments, banking (banktech) and insurance (insurtech). Following, the team issued a manifesto regarding its intention to set a regulatory sandbox. The team noted that regulatory sandbox participants will be granted with time-limited regulatory reliefs, and during that time be able to work closely with the regulators.

Adopting the notion that fintech brings competition to the financial sector, Israeli regulators consider from time to time changes to current regulations. This include new rules recently adopted in connection with hosting/guesting of settlement of credit card transactions players, and new policy adopted by the Supervision of Banks in connection with the process for establishment of a new banks. In addition, in March 2018, the Israel Securities Authority considered recommending the initiation of a time-limited sandbox with respect to Initial Coin Offerings.

Austria Small Flag Austria

There is no predetermined license light scheme allowing for banking transactions set forth in the BWG in Austria.

Cyprus Small Flag Cyprus

Yes, certain banks such as Hellenic Bank and Bank of Cyprus offer a sandbox service on their websites. Such a service enables the users to conduct specific activities, such as the performance of group and multiple payments between the bank’s accounts or a bank’s account and another institution. To date, the national banks of the Republic of Cyprus do not offer a “license light” for any activity.

Finland Small Flag Finland

Finnish law does not recognize a lighter form of registration for credit institutions engaged in regulated activities, including reception of deposits and other repayable funds from the public.

Investment banks providing investment services or engaging in investment activities must have investment firm licences. Investment banks that only provide merger and acquisition related advisory services qualifying as ancillary services under the Finnish Investment Services Act do not require a licence.

Mortgage banks issuing covered bonds secured mainly by housing loans granted by the issuer of the bond, are regulated under the Finnish Act on Mortgage Credit Bank Operations (688/2010). Mortgage banks are defined as banks having the form of a limited company and engaged only in mortgage credit bank operations under a licence granted by the FFSA.

No licensing requirements apply for credit providers who do not raise deposits or other repayable funds from the public. However, for consumer credit providers an obligation to register with the Regional State Administrative Agency.

France Small Flag France

There is no “sandbox” or “license light” but the national authorities have decided to apply the principle of proportionality according to which applicable regulation depends on the size and the nature of the com-panies’ activities.

In this respect, all companies of the same size and nature should meet the same requirements.

In view of providing assistance to start-up, the national authorities have considered that it was more help-ful to offer them regulatory support due to their limited experience and resources in this field by taking the necessary time to explain the different existing status and to direct them towards the most suitable

Turkey Small Flag Turkey

Under the Banking Law and the secondary legislation thereof, those who are willing to engage in licensable activities listed in Article 4 of the Banking Law are required to obtain an operation license from the BRSB, as explained under Question 7 below. As such, there is no concept analogous neither with “sandbox” which may allow companies to test any banking products and services before making an investment in such business in Turkey nor with any quasi license such as “license light” allowing companies to conduct certain activities that exceed the threshold under a sandbox.

Germany Small Flag Germany

BaFin made it clear in several public statements that it does not apply a “sandbox” model. It rather states that it does not see the need for a sandbox approach as it applies “proportionate supervision”. What BaFin means with proportionate supervision is that the level of supervision is proportionate to the level of risk a market participant is taking on or is posing to the financial system. As a consequence, new and, thus, smaller market participants with a restricted business model will be supervised in a different way than incumbent full-service banks.

In terms of licence requirements there are also no “de minimis” or similar rules. Hence, as a general rule, companies that provide licensable services or undertake licensable activities in Germany require a licence irrespective of the size of their operations. BaFin has, however, indicated that in their administrative practice activities below certain thresholds do not necessarily fulfill the requirement of being on a “commercial scale”. This is only applicable in special circumstances and should be carefully examined prior to establishing a business model on this administrative practice. Further, special rules apply to crowdfunding activities.

It should be noted that BaFin established a specific section on its homepage to assist start-up companies. In particular BaFin offers an online questionnaire based on which it will provide the inquirer with a preliminary opinion on whether the proposed activities are licensable or not.

Switzerland Small Flag Switzerland

With effect as of 1 August 2017 and 1 January 2019, respectively, Switzerland introduced a sandbox exemption as well as a license light.

The sandbox exemption applies to businesses that accept client deposits from more than 20 persons, or publicly state that they do so, provided that the aggregate amount of client deposits is less than CHF 1 million, no interest is paid on the client deposits, the client deposits are not invested, and the depositing clients are informed in written from that the company accepting the deposits is not supervised by FINMA and the deposits are not covered by the Swiss depositor protection regime.

In order to allow innovation in the financial sector, since 1 January 2019, entities mainly active in the fi-nancial sector that only accept deposits in the aggregate amount of up to CHF 100 million, or publicly state that they do so, and neither pay interests on such deposits nor invest them are regulated in a spe-cific way. To them, the Swiss Banking Act only applies by analogy and they only have to meet certain requirements, e.g., as to their organization, risk management, compliance, financial means, etc. Such entities also have to inform their clients in written form (not to be included in the general terms and condi-tions) about the risks associated with their business model, services and utilized technologies as well as about the fact that the deposits are not covered by the Swiss depositor protection regime.

Slovakia Small Flag Slovakia

No. AOB allows exercising of banking activities just on the base of banking license issued by NBS and the process is standardized for every proceeding.

Singapore Small Flag Singapore

Yes. However, at present, the regulatory sandbox is only for Financial Technology entities that offer innovative financial products or services, or that offer existing financial products or services in a new and innovative way.

The process involves an application to MAS for a sandbox, supported by various information as specified within published guidelines. The overriding objective of the sandbox is to enable the entity to conduct experimentation and testing within a live operating environment, but under a less stringent regulatory framework. After MAS’s approval, the entity concerned will be allowed to carry on business within a more relaxed regulatory environment for a specified period of time. Ultimately, the sandbox will be operative only for a limited period of time. Depending on the experience gained during the sandbox, the entity will, upon exiting the sandbox, be required to determine whether to continue with its business model, refine it or abandon it altogether.

Japan Small Flag Japan

As mentioned in No. 3 above, registered fund transfer service providers are allowed to engage in fund transfers of up to 1 million yen per transaction under a looser regulatory requirement as compared to a banking license.

While there is no regulatory "sandbox" for specific activities or financial services, the Act on Special Measures for Productivity Improvement, which took effect in June 2018, introduced a regulatory sandbox on a project basis. The relevant ministry (including the FSA, where financial regulations are relevant) will certify “testing projects”, which will be exempted from complying with certain regulations for a certain testing period. This scheme may be used by banks.

Oman Small Flag Oman

There is no such accommodation in Oman for persons wishing to engage in banking business in Oman and, as stated in Question 2, persons wishing to carry out any kind of banking business in Oman must obtain a licence from the CBO.

Georgia Small Flag Georgia

No.

Liechtenstein Small Flag Liechtenstein

There is no specific sandbox model or light license comparable to other jurisdictions. However, the FMA has established a FinTech competence team (fintech[at]fma-li.li) and is known to support and accompany FinTechs during the licensing process as well for its constructive exchange with innovative financial service providers.

Luxembourg Small Flag Luxembourg

No.

Portugal Small Flag Portugal

At present, there is no “sandbox” or “license light” for certain activities.

However, for FinTech related activities the Portuguese supervisors for the banking, financial markets and insurance sectors (respectively, Banco de Portugal, Comissão de Mercado de Valores Mobiliários and Autoridade dos Seguros e Fundos de Pensão) have entered into a protocol for the creation of a platform designated “Portugal FinLab – where regulation meets innovation”. The objective of the platform is to foster the development of RegTech, InsurTech and FinTech businesses by creating direct dialogue channels with the supervisors to help companies navigate through the regulatory framework.

Malta Small Flag Malta

There is currently no mechanism in place locally although we are aware that this is on the regulator’s radar.

Qatar Small Flag Qatar

The QCB circulars and guidelines do not provide for the implementation of a “sandbox” in the Central Bank.

Romania Small Flag Romania

No. In principle, there are no exemptions to the requirement for the authorization of banking activities on a professional basis in Romania.

Serbia Small Flag Serbia

Serbian legislation does not recognize “sandbox” or “license light” framework.

United Kingdom Small Flag United Kingdom

Yes. The UK FCA has established a regulatory sandbox for innovative propositions that are either regulated business or support regulated business in the UK financial services market, open to authorised firms, unauthorised firms that require authorisation and technology businesses. The sandbox provides the ability to test products and services in a controlled environment, reducing time to market, providing support to identify appropriate consumer protection safeguards and better access to finance. This has been launched on a cohort basis with five cohorts closed to date.

United States Small Flag United States

Although there are many cases when the complexity of licensing regimes is tailored to the risk of the underlying activities, there are no special “sandbox” or “license light” provisions which would substantially exempt any activity from all financial or banking regulation. That said, a few agencies have proposed exemptive regimes in their specific spheres, though they remain in their nascent stages. For example, the CFPB announced in December 2018 a proposed “project sandbox” rule (the Sandbox) which would provide clarified and expedited pathways for approval and exemptive relief for financial companies from certain customer protection requirements, including provisions governing civil liability, disclosure, and information reporting requirements with respect to regulations on fair lending, consumer credit, and fund remittance systems. To the extent a final rule is adopted, it likely would not afford exemption from contrary state laws. The comment period for the proposed Sandbox rule officially ended on February 11, 2019, but it could still be many months before the agency issues a final rule.

Italy Small Flag Italy

Generally, credit activity (which also includes the purchase of receivables) is a reserved matter, being included in the concept of banking activity. However, there are some exceptions, amongst which:

(i) pursuant to Ministerial Decree no. 53/2015, companies can require a license for the activity of the extrajudicial recovery of receivables that, at certain specific conditions, allows these companies to purchase receivables for “recovery purposes”;

(ii) pursuant to Law 30 April 1999, no. 130, in the context of securitisation transactions the vehicle company (i) can acquire receivables and (ii) can grant loans to borrowers, other than private person and small enterprises, at certain conditions (i.e. the debtor must be identified by a bank or a financial company; the securitisation notes are destined to qualified investors and the bank or financial company retains at least 5% of the risk related to the transaction), provided that the sums paid by the debtor or by the assigned debtors are exclusively destined by the assignee vehicle company to satisfy the rights embedded in the securities issued by the vehicle company itself or by another company, to finance the purchase of these receivables, as well as the payment of the costs related to the securitisation transaction.

Moreover, pursuant to article 111 of the Italian Banking Act recorded as “Micro-credit”, some companies enrolled in a specific register of the Bank of Italy, may grant financing to individuals, partnerships (società di persone), simplified limited liability companies, associations and cooperatives. The facilities granted in this way must be used by the beneficiary exclusively for the start-up or the exercise of independent work or micro-enterprise, can not exceed the amount of Eur 25,000.00 and cannot be secured by pledge/mortgage guarantees.

Thailand Small Flag Thailand

BOT has recently issued a guideline for a regulatory sandbox for FinTech on 11 March 2019 (which became effective on 15 March 2019) in place of the previous guideline of 2016, in order to improve the regulatory sandbox.

Under the guideline commercial banks and other financial institutions must bring innovations to be test-ed with the BoT with respect to common infrastructure / standards e.g. QR codes, which were tested before with the BoT and with respect to the relevant laws required to be tested in the regulation sandbox e.g. transactions related to digital assets of financial institutions.

Slovenia Small Flag Slovenia

Slovenian legislation does not recognize “sandbox” or “license light” framework.

Updated: May 14, 2019