Regulatory sandboxes in LatAm and Caribbean – Inter-American Development Bank report
Inter-American Development Bank (IDB), the largest source of development financing for Latin America and the Caribbean, has published a report, “Regulatory Sandboxes in Latin America and the Caribbean for the fintech ecosystem and financial system”.
According to a 2017 study done by IDB and Finnovista, there are more than 700 platforms that currently offer financial solutions based on new technologies in LatAm and the Caribbean. Of these, 32.7% are in Brazil, 25.6% are in Mexico, 11.9% in Colombia, 10.2% in Argentina, and 9.2% in Chile.
Alternative finance is the leading activity in the region, with 25.6% of the total platforms dedicated to this sector and 25.2% to payments, followed by business finance management (13.2%).
The mission of more than 40% of monitored ventures in the region is to serve clients who are excluded or underserved by the traditional financial services sector.
All these innovations brought about by the growth of fintech in the region “pose a series of challenges for regulators and financial supervisors, who are tasked with reducing uncertainty associated with the phenomenon”, the IDB report says.
“Regulatory sandboxes are tools to mitigate uncertainty in a controlled environment in which companies can test their services under the financial regulator’s oversight. There is a possibility that the region can advance toward common principles to allow ecosystem development and regulatory convergence among the different countries.
“Regulatory sandboxes offer innovative companies the possibility of operating, for a limited time, with a restricted number of clients, under conditions determined by the supervisor, and with less stringent requirements. They represent a very attractive and inexpensive option for testing products, services, and innovative technological solutions in a controlled environment. For supervisors and regulators, they offer a valuable space for learning how new sectors operate, assess whether and how they need to regulate areas not covered by rules, or modify those that may diminish the benefits of innovation.”
The report introduces regulatory sandboxes in the area of finance, defines them, and presents and compares some experiences (with particular attention to sandboxes in the UK and Singapore). It also contains recommendations for Latin American countries.
IDB’s aim is to aid economic and social development and regional integration – and it is doing so by lending to governments, government agencies and state-owned companies. The bank counts 48 countries as its members. Its head office is in Washington DC, US.
Click here to read the full report in English (PDF file).
Click here to read the full report in Spanish (PDF file).