On 10 December 2024 the Financial Markets Authority (FMA) announced that it is launching a pilot regulatory sandbox which will run from January to July 2025. The pilot will be open to select applicants, and a decision on whether a permanent regulatory sandbox is necessary is to be made later in 2025.
The regulatory sandbox will allow financial services providers and fintechs to test "innovative products, services or business models" in a controlled environment. In addition to regulated financial services, the sandbox will be open to other products or services, including for example those which "simplify compliance solutions" or use "blockchain or regulatory technologies".
The regulatory sandbox would be available to all entities which operate in sectors under the FMA remit and would include new entrants. The FMA identified the following goals/benefits of a regulatory sandbox:
- Encourages innovation by allowing entities (both start-ups and established providers) to test new products and services in a controlled environment
- Helps entities gain a "deeper understanding of supervisory expectations"
- Allows for entities to tweak or adjust a product prior to a full launch, which may help reduce costs for entities
- Helps the FMA gain a greater insight on developing technologies, as well as the risks and benefits of financial innovation and new technologies, and to better assess the viability of innovative products and services.
The FMA also expects that the testing of products will give them a greater ability to react faster and more effectively to regulatory problems, as well as to identity gaps in investor and customer protection.
The FMA have provided an Expression of Interest form for those entities wanting to participate in the pilot, and is currently looking for entities who:
- Have a product ready to be tested in the New Zealand market with customers
- Understand what aspects of existing financial regulation apply to their product or service
- Have considered where they need guidance from the FMA and why participation in the sandbox will help their go to market plans.
Our view
We view this announcement as positive news for the financial services sector and particularly those entities who are involved in new and developing technologies. The financial services sector has been asking for a regulatory sandbox for many years (for example, the ASIC regulatory sandbox in Australia has been operating since 2016), and this announcement hopefully represents an intention by the FMA to encourage and support greater technological innovation.
Although a positive development, the announcement does not specify the exact parameters of the sandbox, and the extent to which it will exempt participants from the application of the existing financial services law. For example, the ASIC regulatory sandbox operates under a detailed Australian Financial Services Licence exemption. Presumably further detail will follow, which will be helpful for potential participants to assess the usefulness of participation.
Get in touch if you are an existing financial service provider or you are considering entering the New Zealand market and would like to assess whether a regulatory sandbox will create opportunities for you. If you wish to discuss any aspect of the New Zealand financial services landscape, please contact our financial services regulation team.
This article was co-authored by Andrew Suggate (senior associate) and Thomas Carr (solicitor).