Mulvaney Says CFPB is Developing “Sandbox” for Fintech Startups to Test Innovative Products with Looser Regulatory Burdens

In a speech this week to Women in Housing and Finance, a non-partisan, nonprofit forum for business and policy experts to share their views and insights, Acting CFPB Director Mick Mulvaney announced that the consumer protection bureau was developing a regulatory “sandbox” for fintech firms. Such a program would allow fintech startups to test products and government authorities to offer guidance, free from certain regulatory requirements that are imposed on more established players in the space.

A similar testing ground program in the United Kingdom was launched by the Financial Conduct Authority (FCA) in 2016 to allow businesses to test innovative products, services, business models, and delivery mechanisms in the real market and with real consumers, without requiring a full, strict regulatory process for testing. Based on that program’s successes, the FCA earlier this year expanded their efforts, launching a global fintech regulatory sandbox.

“We recognize that so often the case with new technology, there is a needle you have to thread,” Mulvaney said. “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 over-regulate, you sort of tamp down that creativity and you discourage the innovation.”

Some states have already taken steps to establish fintech sandbox programs on their own. Arizona became the first state to adopt a regulatory sandbox program in March and Illinois lawmakers are actively considering it. In Arizona’s program, startups, entrepreneurs, and even established companies can launch products on a limited, temporary scale to test them in the real market without incurring regulatory costs and burdens. The Arizona program is looking to be active and ready to accept applications later this year.