CFPB opens regulatory sandbox for blockchain in U.S.

25 July, 2018

On June 18th, the Consumer Financial Protection Bureau’s acting director Mike Mulvaney announced that the CFPB has started an initiative to help companies use blockchain technology to improve their products and services. To this end, the CFPB is partnering with the Commodity Futures Trading Commission to bolster Fintech startups with a regulatory sandbox.

The sandbox model

The sandbox model began in the computer science industry as a way to test both technology and business ideas without heavy oversight from other institutions. Regulatory sandboxes are useful because they get around certain government regulations so that Fintech companies can test their services while public institutions observe and offer guidance.

In an interview with the Wall Street Journal, Mulvaney stated that the new sandbox will examine blockchain technologies, cryptocurrency, and individual “micro-lending.”

Mulvaney has been a long-time supporter of cryptocurrency and blockchain technology. Speaking at the Future of Fintech conference last month, he stated that one of the main issues in the U.S. is finding the “sweet spot” of using new financial technology services without letting scammers and hackers become even more empowered. He indicated that frameworks for financial institutions were in need of a serious update, since recognizing customers only through the lens of brick-and-mortar financial institutions brings its own risks.

Paul Watkins, who previously assisted the state of Arizona in developing its own regulatory sandbox, will be leading the initiative as the new director of the Office of Innovation at the CFPB.

Developments worldwide

A regulatory sandbox was also announced in the United Kingdom earlier this year. The UK’s Financial Conduct Authority stated that it would be testing new financial technology applications and opening up a regulatory sandbox for selected crypto startups. The UK isn’t the only country already on board with helping Fintech companies grow, as nearly 20 sandboxes around the world are developing or already at play.

This is just one of many examples showing that competition is as fierce as ever for financial technology—especially involving blockchain—both domestically and abroad.

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