Danish financial services regulator launches sandbox initiative

FT Lab offers fintech startups a platform to test out their products in a secure environment

The Danish Financial Supervisory Authority (DFSA – Finanstilsynet) has become the latest Nordic regulator, after Norway, to roll out an ambitious sandbox initiative targeting Denmark’s most innovative fintech startups.

The DFSA has launched its FT Lab project against a backdrop of leading regional finance players also engaging in sandbox initiatives to test pioneering technologies.

The FT Lab is custom-designed to offer selected companies a platform to test their technologies in a secure environment. The regulatory sandbox will also help fintech startups to access data and build more commercially robust products and services.

It enables pilot testing of new technologies in a limited market environment under regulatory supervision, but without the need to be licensed.

This will provide a valuable, low-cost testing ground to ensure regulatory compliance and security checks for financial operations, including cryptocurrencies and blockchain-based systems.

Fintech firms can, within this monitored and performance-measured test platform, simulate production environment on a real-time basis, and in such a way that will help them reproduce responses from various systems and application interfaces.

The FT Lab will enhance the DFSA’s understanding of fintechs and new technologies that may have a significant impact on Denmark’s financial services industry going forward, said Tobias Thygesen, head of the DFSA’s fintech, payment services and governance operations.

“The FT Lab sandbox offers a lot of flexibility for the companies that will participate in it,” he said. “Fintechs will have the opportunity to jointly investigate, test and assess how their technologies and business models fit into the financial regulation area.”

Thygesen said he expects the typical test period to last between six and eight months.

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 FT Lab restricts the number of fintechs taking part to five in any one test period. Participation is open to both fintech entrepreneurs and more established startup companies.

The scheme’s launch follows several pilot projects run by the DFSA in 2018 to test new developments in blockchain and machine learning technologies. The FT Lab was also influenced by the DFSA’s decision in 2017 to create the Fintech Forum.

The forum, which meets three times a year, was set up to identify the unintended consequences of regulation that may prevent or complicate the use of new technologies in the financial sector.

The knowledge and experience gained from the pilot schemes and the Fintech Forum have given the DFSA a deeper insight into evolving fintech technologies. The FT Lab will also improve the DFSA’s capacity to determine whether fintechs’ activities fall within the scope of financial regulation and licensing rules.

The FT Lab has attracted strong interest from early-stage fintech innovators developing next-generation, consumer-based technologies for the banking, investment and digital payments sectors.

For example, the DFSA has a heightened interest in selecting fintechs that are engaged in developing e-money, digital payments, alternative investment funds and financial advisory systems. Fintech firms operating in these product and service domains are expected to need to be licensed.

Ambitious sandbox initiatives

Beyond the regulator, Nordea and Danske banks are pursuing ambitious sandbox initiatives that include technology exchange cooperation agreements and equity-linked partnerships with fintech innovators across the Nordic countries.

Danske has become Mastercard’s senior Danish partner in the Lighthouse development programme initiative formed by Mastercard in collaboration with Stockholm-headquartered private equity group NFT Ventures.

The Lighthouse project provides a collaborative bridge between leading regional banks and the more promising fintech companies in Nordic and Baltic countries, said Johan Lundberg, NFT’s founding partner and CEO.

“We recognised a void in the market for fintechs that have found their initial product-market fit and are in a position to really grow by working with incumbent players and their large networks,” said Lundberg. “What makes Lighthouse unique is that it serves as a platform for fintechs to connect with incumbents. That is why building a strong network with major banking partners like Danske is key.”

The spring 2019 instalment of the Lighthouse project involved 15 fintechs from Denmark, Norway and Estonia, including Danish digital banking solutions firms ERNIT, Spiir and Hufsy, as well as mobile shopping app innovator Zliide.

Morten Schwaner, head of Danske Bank’s card and mobile payments department, said: “We believe we can create more value for our customers through fintech partnerships. This has become a core pillar in our strategy. Lighthouse presents a great opportunity to build partnerships with talented fintechs through Mastercard’s global network.”

Open banking platform

Nordea’s sandbox is linked to its open banking (OB) banking product platform, and the recent launch of Instant Reporting, the bank’s first commercially viable OB product. The OB platform was developed in cooperation with Nordic fintech partners.

The launch of Nordea’s Instant Reporting into the sandbox, along with the bank’s application programming interfaces (APIs) developed with Oracle, gives the Nordic banking group’s corporate clients real-time access to account balances and key data.

“One of the starting points for what we do in Nordea is to understand how we can best work together in the open banking world, and how fintechs can benefit from what the financial industry does, and vice versa, in delivering solutions to our customers,” said Claus Richter, head of transaction banking solutions at Nordea.

The opening up of Nordea’s Danish APIs gives licensed third parties access to the developer platform and data. Nordea says this initiative will enable the development of future innovative offerings for Danish customers.

Nordea has now launched its OB platform and its APIs in Denmark, Finland and Sweden, and is set to add Norway to the list this year.

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