CFPB, CFTC Develop FinTech Regulatory Sandbox

The Consumer Financial Protection Bureau (CFPB) has announced that it is working with the Commodity Futures Trading Commission to develop a regulatory sandbox for FinTech firms.

“We are … in the process of putting together, for lack of a better word … a FinTech sandbox,” said acting CFPB Director Mick Mulvaney in a speech to the Women in Housing and Finance group, according to American Banker.

“We recognize that so often the case is with new technology, there is a needle you have to thread,” he added later. “If you don’t give any regulation at all, it has the chance to go off the rails and completely burn itself out, which is where I was fearing bitcoin was going to a couple months ago if they haven’t already. And at the same time, if you overregulate, you sort of tamp down that creativity and you discourage the innovation.”

While the Dodd-Frank Act allows the CFPB to implement ways to foster innovation, the agency’s efforts have largely been seen as inadequate.

A sandbox provides relief from certain regulatory requirements so FinTech startups can test products and government authorities can offer guidance. The United Kingdom has already provided startups with this type of space, and earlier this year Britain’s Financial Conduct Authority (FCA) announced plans for a global testing bed for new financial technology apps.

Chris Woolard, the FCA’s executive director of strategy and competition, revealed at the time that the FCA’s sandbox, which is the first of its kind, has worked with 70 FinTech firms – and 90 percent of those in the first round of applications made it to market and were able to easily raise money.

But the U.S. has so far lagged behind in setting up sandboxes, although individual states have been utilizing the concept on their own. Arizona was the first state to adopt a regulatory sandbox in March, while Illinois lawmakers are considering legislation to establish a similar concept.