Arizona’s Fintech Regulatory Sandbox Now In Effect

Arizona's Fintech Regulatory Sandbox Now In Effect

Arizona is the first state in the nation to establish a regulatory sandbox that allows startups in the fintech sector (financial technology) to test new financial products without immediately facing regulatory burdens that may have otherwise created a barrier to innovation.

Under the regulatory sandbox program created by Arizona House Bill 2434, startups, entrepreneurs, and established companies “can launch financial products on a limited, temporary scale to consumers to test innovative products, services, business models, and delivery mechanisms in the real market without incurring the regulatory costs and burdens that would otherwise be imposed.”

The idea of a financial sandbox is not new. Arizona joins a number of other countries who have instituted sandboxes and are actively encouraging fintech investment, including the United Kingdom, Australia, the United Arab Emirates, and Singapore.

Governor Doug Ducey said, “We recognize that FinTech is going to fundamentally transform banking, finance, investing, data analytics, and more – and we’re going to be the first to truly embrace it.”

The Arizona regulatory sandbox program is to be administered by the Civil Division of the Office of the Attorney General. The sandbox is slated to be active and ready to accept applications in late 2018. The Office of the Attorney General will be responsible for approving applicants to the sandbox. Under current legislation, the sandbox program will end on July 1, 2028.

Sandbox applicants will be required to provide detailed information on their financial product or service to the Office of the Attorney General. If approved, sandbox participants will be given 24 months to test their innovative financial product or service, with an option of a one-year extension by request and approval. The Arizona Consumer Fraud Act applies to all sandbox financial products and services.

Arizona Attorney General Mark Brnovich said, “Arizona has always been a state for big ideas and this is just one more place where we are trailblazing in entrepreneurship and innovation. I hope to see the sandbox serve as a catalyst for capital investment in Arizona and provide opportunities for Arizona businesses and consumers to thrive.”

The regulatory framework on financial products and services can create barriers to innovation. By creating a sandbox for fintech products to be tested on the open market, Arizona seeks to remove the burdens of compliance costs, fees, and legal expenses.

 

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