MALTA REGULATORY SANDBOX
Malta has already established itself as a pioneer in regulatory financial technology, especially in the field of Distributed Ledger Technology (‘DLT’). In an effort to further consolidate such a success, the Malta Financial Services Authority (MFSA) is now proposing to set up a Regulatory Sandbox to further support technology enabled financial innovation.
In essence, a regulatory sandbox is a supervised environment which supports and facilitates innovation whilst safeguarding consumer protection, market integrity and financial soundness. This will give the opportunity for participants to test the commercial and regulatory viability of their innovations for a specified period of time in a fully functional financial services environment, under a set of conditions and limitations, in order to strictly contain the associated risks to the said consumers and the financial system. Such an environment is targeted at vast spectrum of participants, ranging from financial services providers and new entrants, including start-ups, scale ups and technology firms.
The Regulatory Sandbox will also cater for services that do not clearly fall under specific financial services legislation and will also accommodate services that enable or facilitate the provision of such financial services, such as, solutions pertinent to Customer Due Diligence as well as Supervisory and Regulatory Technology.
The MFSA clearly listed the main objectives of the Sandbox as being the support of sustainable financial innovation and the reduction of regulatory uncertainty, and such are achieved via the following principles:
Fostering Innovation – by giving the opportunity to participants to test the viability (both commercial and regulatory) of their financial innovation over a specified period of time in a fully-functional and regulated environment
Ensuring effective investor and consumer protection – this is achieved through the MFSA’s enhanced supervision which will monitor whether the innovations truly offer an added value to the ultimate consumer.
Enhancing firms’ understanding of regulatory expectations via an open dialogue with the MFSA.
Knowledge Sharing - the Sandbox would also provide the MFSA with the necessary space to determine the appropriate regulatory and supervisory requirements -which will be used to implement future policy measures.
Participation within the Sandbox requires Applicants to meet certain mandatory eligibility criteria, mainly innovation, need for testing, readiness of the applicant and consumer benefit. Throughout the period, all Sandbox Participants will hold frequent meetings with the MFSA and will be closely monitored to ensure that they are adhering to the regulatory requirements applicable to them while operating within the conditions specified within the provisional authorization.
Via the introduction of the Sandbox, the MFSA will seek to further align regulation and compliance with the exponential growth of the FinTech industry without overburdening the industry with cumbersome rules but at the same time, without compromising on consumer protection. It will also give the opportunity to different key players to test the waters of the newly-regulated business and reassure consumers who would have otherwise deemed the industry as too risky.
Dr. Francesco Sultana
Kinanis Fiduciaries Limited Francesco.Sultana@kinanis.com
This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.
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refers to the service mark through which Kinanis LLC of Cyprus, Kinanis Fiduciaries Limited of Malta and their affiliated
companies are conducting business, each of which is a separate legal entity.