Dr Alfredo Hernández Sánchez, a Marie Skłodowska-Curie grant recipient, is advancing our understanding of the development of FinTech regulatory frameworks across Europe through his pioneering research on regulatory sandboxes. The project, known as FIRSA, was awarded funding from the European Union’s Horizon Europe programme and is being carried out in collaboration with Vilnius University’s Institute for International Relations and Political Science (VU IIRPS).
The growth of the financial technology (FinTech) sector has introduced new challenges for regulators seeking to maintain financial stability while promoting innovation.
A regulatory innovation known as the “FinTech regulatory sandbox” (FRSB) has gained traction in response to this challenge. These sandboxes allow firms to test new financial services involving cutting-edge technologies such as artificial intelligence (AI) and big data while regulators monitor and mitigate potential risks.
However, the adoption and development of these sandboxes have varied significantly across European Union countries, with some embracing them more readily than others.
Dr Hernández Sánchez’s FIRSA project aims to fill this knowledge gap by creating a multidimensional framework to analyse the regulatory sandboxes across the EU.
The project seeks to identify the strengths and weaknesses of different models and understand the mechanisms behind their implementation.
Aiming to Understand Regulatory Differences
According to Dr Hernández Sánchez, the primary objective of the FIRSA project is to explore why some EU countries have developed regulatory sandboxes while others have not.
“The goal is to understand the differences in approaches across Europe,” he explained. “We are looking at how sandboxes are organised, why they are created in some countries and not in others, and what we can learn from these varying experiences.”
The second phase of the research will focus on extracting policy lessons from the experiences of countries that have implemented these sandboxes.
Dr Hernández Sánchez and his team will evaluate which models have been most successful and identify markers of success, including whether they are applied consistently across different jurisdictions.
The Role of E-Government in Driving Innovation
Dr Hernández Sánchez’s early findings suggest that the level of e-government services in a country plays a significant role in whether that country is likely to implement a FinTech regulatory sandbox.
“One of our key findings so far is that the greatest predictor of a country’s willingness to develop a sandbox is the level of digital government services,” he said. “Countries with more advanced e-government services tend to be more open to adopting these types of regulatory innovations.”
Interestingly, Dr Hernández Sánchez notes that countries motivated by innovation in the public sector are more likely to establish regulatory sandboxes, compared to those with a primary focus on financial stability. This suggests that the adoption of these sandboxes may be driven by a broader desire to foster technological progress rather than solely by financial sector needs.
Bridging the Gap Between Theory and Practice
While regulatory sandboxes offer a promising framework for balancing innovation with regulation, there is still much to learn about their real-world effectiveness.
Dr Hernández Sánchez hopes his research will provide valuable insights into whether these sandboxes are merely theoretical solutions or genuinely foster innovation.
“We don’t have enough data yet on how these platforms work in practice,” he said. “Our study will help to understand whether they are helping companies experiment and innovate or whether they are simply theoretical solutions with limited practical application.”
From a scientific perspective, the research will contribute to a more systematic understanding of regulatory sandboxes and their effectiveness in different EU countries.
Dr Hernández Sánchez hopes the findings will serve as a resource for policymakers, helping them refine existing regulatory frameworks or create new ones that better balance regulatory requirements with the need for innovation.
Practical Implications for Policymakers
The practical implications of Dr Hernández Sánchez’s research extend far beyond academia.
His research could provide valuable insights for policymakers looking to improve or implement similar systems in their own countries by identifying which regulatory sandbox models are working well.
These findings could also inform broader mechanisms for encouraging innovation while ensuring financial stability and protecting consumers.
“The results of this research could be precious to policymakers,” Dr Hernández Sánchez said. “They can use our findings to develop better regulatory frameworks that promote innovation without compromising financial security.”
Dr Hernández Sánchez’s work on the FIRSA project is expected to provide crucial insights into the development and effectiveness of FinTech regulatory sandboxes across Europe.
With the support of the European Union’s Horizon Europe programme, this research will not only advance our theoretical understanding of these platforms but also offer practical guidance for policymakers and the wider financial technology sector.
The views expressed in this article are those of the author and do not necessarily reflect those of the European Union or the European Research Executive Agency.