Regulatory Sandboxes, Innovation Hubs, and Other Regulatory Innovation Tools in Latin America and the Caribbean

Financial technology (fintech) creates a profound impact and structural change in the financial market in an unusually rapid way. Traditional regulatory tools, as well as the use of new regulatory policies necessary to harness fintech, are insufficient and too slow to fulfill the regulatory objectives of protecting financial consumers, ensuring fair and orderly markets, and reducing systemic risk. Without the use of innovative regulatory tools, countries run the risk that their financial innovation is not developed sufficiently or is launched outside the reach of the regulator and supervisor, with all the risks that this entails. The innovative regulatory tools recognized and discussed in this report include regulatory sandboxes, innovation hubs, accelerators, and roundtables. Of these tools, the sandbox and hub are the most used and as such will receive particular attention. This report presents the preliminary results of an IDB survey of innovative regulatory tools implemented around the world, as well as a summary of the available academic literature on the topic. It also analyzes the situation of the countries of Latin America and the Caribbean (LAC), their regulatory and policy options, as well as the operational requirements to employ regulatory innovation.