Inside the Regulatory Sandbox: Effects on Fintech Funding

41 Pages Posted: 23 Dec 2020

See all articles by Giulio Cornelli

Giulio Cornelli

Bank for International Settlements (BIS)

Sebastian Doerr

Bank for International Settlements

Leonardo Gambacorta

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Ouarda Merrouche

University of Lausanne

Multiple version iconThere are 2 versions of this paper

Date Written: November 2020

Abstract

Policymakers around the world are adopting regulatory sandboxes as a tool for spurring innovation in the financial sector while keeping alert to emerging risks. Using unique data for the UK, this paper provides first evidence on the effectiveness of the world's first sandbox in improving fintechs' access to finance. Firms entering the sandbox see a significant increase of 15% in capital raised post-entry, relative to firms that did not enter; and their probability of raising capital increases by 50%. Our results suggest that the sandbox facilitates access to capital through two channels: reduced asymmetric information and reduced regulatory costs or uncertainty. Our results are similar when we exploit the staggered introduction of the sandbox and compare firms in earlier to those in later sandbox cohorts, and when we compare participating firms to a matched set of comparable firms that never enters the sandbox.

JEL Classification: G32, G38, M13, O3

Suggested Citation

Cornelli, Giulio and Doerr, Sebastian and Gambacorta, Leonardo and Merrouche, Ouarda, Inside the Regulatory Sandbox: Effects on Fintech Funding (November 2020). CEPR Discussion Paper No. DP15502, Available at SSRN: https://ssrn.com/abstract=3753901

Giulio Cornelli (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Sebastian Doerr

Bank for International Settlements ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

HOME PAGE: http://www.sdoerr.com

Leonardo Gambacorta

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ouarda Merrouche

University of Lausanne ( email )

Quartier Chambronne
Lausanne, Vaud CH-1015
Switzerland

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