Promoting Fintech Innovation and Consumer Choice: The Role of Regulatory Sandboxes

In today’s highly regulated financial system, launching new products and financial services businesses can be extremely challenging. To facilitate innovation and entry, some jurisdictions have created regulatory sandboxes — supervised halfway houses in which firms can test new products without being subject to the full burden of compliance with existing rules. The Consumer Financial Protection Bureau (CFPB) recently announced such a program for U.S. consumer finance firms. The sandbox promises to increase innovation and lower costs for financial services used particularly by lower‐​income Americans. Yet there are concerns, on one hand, that sandboxes reduce consumer protection and, on the other hand, that they do not go far enough in addressing the challenge of excessive regulation.