On 14 November 2020, the BOE published Law 7/2020 for the digital transformation of the financial system (the "Sandbox Law"), approved by the Senate's Economic Affairs and Digital Transformation Committee. This law establishes an appropriate legal framework in Spain to guarantee that the process of innovation in the financial market is carried out effectively and safely for users and consumers. The implementation of the Sandbox Law will make it possible to create new initiatives in the Fintech ecosystem, simplify access to financing, encourage greater competition and lower entry barriers.
The main novelty brought about by the Sandbox Law is the creation of a testing area (sandbox) that introduces secure conditions for testing technology-based financial innovations under the supervision of the competent supervisory authorities depending on the sector in which each project operates (Bank of Spain, National Securities Market Commission (Comisión Nacional del Mercado de Valores) or Directorate-General of Insurance and Pension Funds (Dirección General de Seguros y Fondos de Pensiones)) and with maximum guarantees for participants. Thus, the testing of these new services or business models will be governed by the Sandbox Law, without being subject to the sectorial regulations on banking, insurance or the stock market. Those who participate in the tests will have to give their express consent, the developers of the project will need to have guarantees to cover possible damages or losses and the project will have to be monitored and have a continuous dialogue with the competent supervisory authority, who will also analyse the viability of the project.
As far as eligible projects are concerned, the sandbox will be open to projects that:
- provide innovation of a purely technological nature to the financial sector,
- are sufficiently advanced, i.e. present a prototype that offers a minimum level of functionality to test its usefulness and allow its future viability, and
- demonstrate that they provide added value in aspects such as improving regulatory compliance or increasing efficiency.
The application period for access to the sandbox will be from 13 January 2021 to 23 February 2021, submitted to the General Secretariat of the Treasury and International Financing (Secretaría General del Tesoro y Financiación Internacional). Applications must be accompanied by a detailed report explaining what the project consists of and that the requirements for access to the sandbox set out in Article 5 of the Sandbox Law are met. In the event of a favourable evaluation and after signing a protocol with the competent authority setting out the terms and conditions to which the pilot project will be subject, the developer will proceed to obtain the informed consent of the participants and activate the system of guarantees and indemnities envisaged.
This ensures that innovative projects reach the market after prior analysis of the constraints they may face under current regulation or their possible effects on consumer protection or financial stability. Participants and developers will be the first to benefit from the introduction of the sandbox in Spain, insofar as the projects approved will have passed the authorities' supervisory filter for fully respecting users' rights, and very high level projects that had been put on hold because they did not fit exactly within the law will come into existence.