MFSA launches Fintech Regulatory Sandbox

The Malta Financial Services Authority (MFSA) has introduced its FinTech Regulatory Sandbox, which provides a controlled regulatory environment where FinTech operators may test their innovations within the financial services sector under prescribed conditions.
 
The FinTech Regulatory Sandbox was launched during a press conference held on the 22nd of July, 2020. It aims to be a valuable tool for start-ups and established operators in financial services to identify regulatory gaps and risks before implementing financial innovations in their business models, applications, and products.
 
The sandbox is intended to support more sustainable financial innovation while ensuring regulatory certainty and promoting knowledge sharing between operators and the regulator. 
Through close dialogue, the MFSA will monitor participants and determine whether their innovations can indeed offer added value to the financial services market and guarantee customer protection.
 
Moreover, the sandbox will increase legal certainty as it provides the opportunity for both the participants and the authority to determine the requirements and the frameworks which apply for their solution to be of maximum benefit to customers and the broader financial services sector.
 
This new framework sets out definitions of Fintech Service Provider and Fintech Supplier as follows:
 
Fintech service provider: a person who is duly licensed or otherwise authorised by the MFSA to provide, or who intends to provide services requiring a licence or other authorisation in terms of applicable financial services legislation in Malta and who utilises FinTech in its operations.
Fintech supplier: any person who provides or intends to provide a FinTech solution which does not require authorisation in terms of any financial services law in Malta.
 
The sandbox is open to all FinTech service providers and suppliers on an ongoing basis; however, applicants must satisfy various eligibility criteria including showing that the innovation fulfils a genuine need in the market and is ready for testing.
 
Regulatory Sandbox Lifecycle Stages
 
The participant will be required to pass through the following six stages that make up the lifecycle of the regulatory sandbox.
 
Proposal
 
Participants can submit their proposal to the authority through the online proposal form.
 
A Participant Development Lead (‘PDL’) will be assigned to each applicant to act as a dedicated contact point and provide the applicant with the necessary regulatory guidance throughout its Sandbox lifecycle.
 
Selection
 
The MFSA shall determine whether the applicant falls within the scope and whether its solution meets the eligibility criteria. In turn, the applicant shall be notified whether they may proceed to the next stage or not.
 
Application
 
Selected applicants will be classified as either a (1) FinTech Financial Services Providers, (2) FinTech Suppliers or (3) Other Applicants and will be required to obtain a licence or other authorisation as may be determined by the MFSA. Applicants will also be required to be fit and proper on a continuous basis.
 
Testing
 
During this phase, participants shall cooperate openly and honestly with the MFSA and inform it promptly of any relevant information. Every participant must take reasonable steps to ensure continuity and regularity in the delivery of its solution.
 
Evaluation
 
Participants shall be required to submit a report outlining the performance of its solution based on the testing objectives and performance criteria, together with its intended Exit Strategy as agreed upon with the MFSA during the Application Stage. The authority will determine the appropriate exit strategy to be implemented.
 
Exit
 
Based on the decision of the authority, a participant will either continue to operate within the sandbox or implement the appropriate exit strategy which would either entail discontinuing the solution or continuing with their activity outside the sandbox.
 
Queries on the FinTech Regulatory Sandbox may be sent to dchappell@muscatmizzi.com
 
 
Author: Deborah Chappell Related Practice Area: Financial Services

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