The regulatory sandbox enables companies to test innovative financial technology (FinTech) products and services within clear boundaries. Find out what you should take note of before you buy a product or service from a company operating in the sandbox.
- FinTech sandbox is a test-bed for innovative financial products and services
- When the experiment ends, some companies may end too
- Understand the risks involved before dealing with an entity in the sandbox
What is a regulatory sandbox?
A regulatory sandbox provides an environment for companies to experiment with innovative FinTech products and services.
To encourage innovation in the financial sector, the Monetary Authority of Singapore (MAS) allows firms to test their products in the market within a clearly defined space. The rules are that they can do so only for a limited period, and with a limited number of customers or transactions.
Sandbox safeguards
A sandbox company is not required to comply with some of the usual regulatory requirements imposed on companies providing financial products and services. It is allowed to do so for a limited time, and only with certain conditions and safeguards.
Generally, the sandbox company will have to ensure that there are safeguards to contain the consequences of business failure during experimentation and to minimise any impact on the financial system.
Learn more: MAS FinTech Regulatory Sandbox Guidelines
What you should watch out for
Thinking about buying a product or engaging the services of a sandbox company? Before you do so, check the following:
Is the company approved to operate in the sandbox?
All active sandbox companies will have their names, start and expiry dates published on the MAS website.
Have you understood the risks?
Although a sandbox company is not required to comply with all the regulations imposed on financial institutions, it must:
- Clearly inform you that it is operating in the sandbox
- Disclose the key risks associated with the product or service
- Get you to acknowledge that you have read and understood these risks
Note: If you participate in any sandbox experiment, you may not be able to get help with dispute resolution from the Financial Industry Disputes Resolution Centre (FIDReC) or the Singapore Deposit Insurance Corporation (SDIC).
Do you know what happens when the experiment ends?
When the time is up, a sandbox company may:
- Apply for a licence with MAS to continue their business.
- Stop offering the financial product or service. This could be because their business model is not viable, their technology is unable to deliver the expected results or they are unable to meet regulatory requirements upon exiting.
If the sandbox company chooses not to apply for a licence, it must inform you in advance and exit according to the agreement you have entered with them. Consider how each of these scenarios can affect you as a buyer or investor.
The bottom line
Being the first to use an innovative FinTech product or service can be exciting, but make sure you know what you're getting into. Before you take part:
- Check that the company is approved to play in the sandbox
- Make sure you understand the features of the product or service offered
- Assess whether the product or service meets your needs
- Find out what would happen to the products or services when the company exits the sandbox
All financial products and services come with benefits, as well as risks and limitations. Take the time to understand the features of the product or service offered, and assess whether the product or service meets your needs.
