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Norway’s Ministry of Finance (MoF) is launching a regulatory sandbox to support the growth of fintechs and boost the adoption of their products and service.
The primary objective is to use the sandbox as a test-lab for tech firms and fintechs to trial products, technologies and services. It will also support the regulator’s efforts to regulate an industry rapidly adopting disruptive technologies, such as digital and artificial intelligence (AI) within the IT and fintech industry.
Regulators and fintech firms are to test ideas without having to first go through a costly and lengthy authorisation process.
The regulatory sandbox initiative is aimed at narrowing the existing innovation gap between Norway neighbouring Nordic states Denmark and Sweden. The project offers a low-cost and largely risk-free environment to test digital-AI products, technologies and services on a limited number of customers under the supervision of Finanstilsynet, Norway’s financial services authority (FSA).
The initiative will also benefit the FSA by providing it with knowledge transfer and give it access to evolving IT, digital and AI technologies that will create the next generation of innovations. These innovations have the potential to radically change and reshape how financial services are delivered to consumers.
For the FSA, the educational value of the “sandbox” will be in knowledge transfer in important development areas such as AI driven services, and application programming interface (API) innovations.
The FSA will create the test framework for the sandbox project and leading its day-to-day activities in partnership with the private IT and fintech industry.
Read more about fintech in the Nordic region
- The Nordic region created three of the top 10 global financial technology (fintech) deals in the first six months of this year as Europe proved the dominant location for investment, according to research from KPMG.
- Large Nordic banks are rapidly moving to a digital delivery model, with redundancies inevitable as they try to fend off smaller competitors – and the SME business banking sector is becoming a key battleground.
- Swedish bank Nordea has continued its policy of financial technology collaboration by forming a partnership with Stockholm-based payments startup Betalo to expand its mobile offering.
- In 2014, the Nordics were second only to the UK and Ireland as the most significant region for financial technology (fintech) investment in Europe.
The initial proposal to launch a regulatory sandbox was in the MoF’s 2018 Financial Market Report. The MoF tasked the FSA with heading-up the project in November 2018. It is expected to begin accepting applications by year-end 2019.
The MoF’s wish to see the process commence at the earliest time could see the FSA accept first applications in the third or fourth quarters of the year.
“The projects that will use the sandbox must meet a number of requirements. However, the FSA may suspend some of these based on a principle of proportionality to the extent permitted by the relevant regulatory regime,” said Morten Wilhelm Winther, partner with the Oslo-based commercial law-firm Simonsen Vogt Wiig, and a special adviser on the fintech and financial regulation sectors.
Applications to the sandbox will be run under an administrative system that will accept applications twice a year. Criteria governing admission to the scheme will require projects to present a genuine innovation that can be regulated under Norway’s financial regulatory regime.
Project applicants will also need to prove that innovations, especially those with a strong digital-AI and applications content, can be beneficial to society and consumers of financial products and services.
“There is a strong need for the sandbox in Norway,” said finance minister Siv Jenson. “It will help new fintech-players with little or no experience in handling a complex legal regime or dealing with supervising authorities.
“It will also help in understanding what requirements and regulations apply to fintechs. Ultimately, the sandbox may lead to new services coming to the market in a more speedy fashion.”
The FSA is constructing its “sandbox” prototype based on a close examination of working models in the UK, the Netherlands and Denmark. The eventual design framework for the sandbox will be heavily influenced by best practice obtained from both consultations with UK and Danish operators and informed by related EU policy initiatives and emerging regulations.
Technology groups such as ICT Norge, the central organisation for Norway’s ICT industry, will also input to the project.
Other partners, and potential user groups, include Finance Norge, the Norwegian data protection, competition and consumer authorities.
Norway’s innovative IT- and fintech startups are becoming more attractive partners and investments for leading Nordic financial groups such as DNB.
The bank established DNB Venture in 2018 with the specific mission of acquiring a strategic equity presence in fintechs specialising in digital and AI-driven customer interaction and product delivery services. DNB Venture also already purchased minority equity positions in two fintechs, the Danish money app and mobile payment solutions firms Spiir and Nordic API Gateway.
“We will pursue fintech investment opportunities that are strategically and financially attractive for DNB,” said Karen Elisabeth Heskja, Investment Manager at DNB Venture.
For large Nordic financial groups, the sandbox will help accelerate the development, regulatory approval and practical application of digital and AI innovations in Norway.
Traditional Nordic banks, and their counterparts across Europe, are facing up to the challenge of how best to deal with so-called disruptors such as Google Pay, Facebook and Apple Pay.
The risk posed by the “newcomers” will not have a major immediate impact on banks. But Nordic banks are stepping up efforts in preparation to form strategic partnerships with IT- and fintech companies. High street finance houses are looking for fintech partners that can help deliver more reliable and value-added AI capabilities to their websites, banking apps and AI agents.
A high proportion of the applications to the FSA’s regulatory “sandbox” are expected to involve next-generation cognitive computing technologies, processes and systems that endeavour to simulate human thought processes.