Why Build a Sandbox on a Beach? An Analysis of Fintech Regulation in New Zealand

Abstract

Regulatory reforms following the 2008 global financial crisis have introduced a significant regulatory burden in the financial services sector. The regulatory burden has created a compliance barrier, making it difficult for financial technology (fintech) start-ups to test new ideas in a timely manner. One solution to this regulatory barrier is the ‘regulatory sandbox’ approach, which has been adopted in Australia, Hong Kong, Malaysia, Singapore, the United Arab Emirates, and the United Kingdom. The regulatory sandbox model differs depending on the existing domestic regulation, but aims to offer standardised concessionary regulation to fintech start-ups while encouraging innovation in the sector. This paper assesses the current legislative environment for fintech in New Zealand and the worth of the regulatory sandbox concept in the New Zealand environment. It concludes that a regulatory sandbox is unnecessary in New Zealand, instead suggesting industry-wide consultation (allowed by already flexible legislation) is a more effective approach to regulating fintech. Regardless, the paper outlines suggests as to how the New Zealand Government can learn from the fintech regulation strategies developed by Australia and the United Kingdom.

Keywords: Fintech, Regulatory Sandbox, Innovation Hub, Robo-Advice, Start-up

JEL Classification: K00