Sens. Marsha Blackburn (R-TN) and Cynthia Lummis (R-WY) this week pressed the Consumer Financial Protection Bureau to work with states to create regulatory sandboxes to stimulate innovation in financial technology. The letter, addressed to Acting Director Dave Uejio, calls for the bureau’s Office of Innovation to expand its work to solve regulatory challenges and promote new technology.
Regulatory sandboxes provide opportunities for fintech organizations to test innovative products and services in a time-bound, regulated environment. This provides benefits both to the organization, which has decreased costs and reduced barriers to market entry, and to regulators, who can test regulations and collect data to consider further action. Sandboxes thus can allow regulation to adapt to the pace of industry innovation.
“The value proposition in sandboxes lies in the collaborative process between innovators and the government and the opportunity to obtain specialized guidance from regulators about how new technologies fit into legacy frameworks,” Blackburn and Lummis wrote in the letter.
The letter cites previous examples in which regulatory sandboxes have helped spur innovation. A sandbox created by the United Kingdom’s Financial Conduct Authority encourages innovation from small businesses and entrepreneurs in a secure environment, and it should be a role model for the Office of Innovation, Blackburn and Lummis wrote. They also stressed the importance of working with states that already have sandboxes to ensure they are safe and effective.
The senators noted the importance of maintaining the CFPB’s Office of Innovation, praising the role it has played in spurring fintech innovation. “In our current era of financial technology, we must adopt a proactive approach to technology which both fully promotes new opportunities of this space and appropriately mitigates the risks,” they said.
The senators sent the letter on September 22 and requested a briefing in 30 days.