The Regulatory Sandbox in Latin America and the Caribbean (LAC) for the FinTech ecosystem and the financial system was drawn up by the IDB and made public last March. The document explains the main features of Regulatory Sandboxes or Test Beds, intended to tackle the challenges arising in the fintech industry in LAC.

The FinTech industry has grown significantly in the region and is now seen as an alternative way to improve financial inclusion levels in LAC. However, technological innovations pose many challenges for financial regulators and supervisors. Faced with this situation, regulatory sandboxes can help the situation by offering innovative companies the chance to operate in the market for a limited period of time, while also allowing supervisors and regulators to discover how new sectors work in this test environment.

The most complicated aspect of sandboxes is the balance between fostering innovation and protecting the interests of all the stakeholders within the framework of a stable financial system. In its publication, the IDB proposes a set of recommendations for establishing these platforms so they can do their job properly.

The necessary premise for implementing regulatory sandboxes is the existence of a legal framework that allows them to be created, while regulating aspects such as the necessary legal requirements, their duration (the IDB recommends 6 months with the possibility of further extensions), the information that has to be filed with the supervisor, etc.

The IDB highlights that institutional organisational structures and technical and human resources are required to make these sandboxes possible. This means inter-institutional coordination and transparent supervisory mechanisms; as well as a regulatory convergence that eliminates barriers between the different markets. Once the sandbox has been used for a full term, the need to regulate the sector could be assessed and if regulation is required, an analysis would be conducted to identify the model most in line with the singularities of the industry.

The IDB rounds off its study by highlighting another recommendation relating to governmental support for innovation. Tax incentives and funding subsidies, technical and legal advice, incubator programmes and calls for entrepreneurial tenders, among others, could all help boost innovative sectors and, consequently, help to promote financial inclusion in LAC.