Will the establishment of a regulatory sandbox in six places in China become the place for China's blockchain financial innovation special zone?

Source: Interchain Pulse
Author: Black Pearl
Reprinted without authorization!

On January 14, the website of the People's Bank of China's Business Management Department and the Beijing Municipal Bureau of Local Financial Supervision announced the first batch of applications to be included in fintech innovation supervision pilots, and will be open to the public for comments within the next 10 working days.

Three days earlier, on January 11, the director of the Beijing Municipal Bureau of Local Financial Supervision, Huo Xuewen, asked the representatives of the People ’s Congress at the scene where the relevant departments of the “One House and Two Courts” worked, and stated that Beijing was the first country to pilot a fintech “regulation sandbox” (Also known as the sandbox) has landed last year, and the first batch of boxed projects will be announced soon. Taking Beijing as a representative, the People's Bank of China stated in July 2019 that it would launch a "Chinese version of the regulatory sandbox" and conduct fintech application pilots in ten provinces, including Beijing, Shanghai, and Guangzhou.

Just like in 1980, the advent of special economic zones allowed Shenzhen to experiment with new development models. The existence of the sandbox mechanism is also equivalent to setting up a pilot "special zone" for financial products, allowing new products to run first, and then accompanied by corresponding policies and measures.

"Supervisory sandbox" is a small-scale, first-trial mechanism

The implementation of the “regulatory sandbox” is imminent. 2019 is a big year for blockchain technology, especially in the financial field, which has also spawned many new financial products, but it is difficult to form effective supervision. Technology development is requiring new regulatory measures and consumer protection methods.

On January 14, Hu Guang, member of the Standing Committee of the Shanghai Municipal Committee of the CPPCC and director of Shanghai Junyue Law Firm, suggested that Shanghai should introduce a “supervised sandbox” system as soon as possible at the third session of the 13th session of the Shanghai Municipal Committee of the CPPCC. For example, Hu Guang, just as the blockchain has been demonized, it has been proven that the blockchain can solve the problem of credit verification in the financing difficulties of private SMEs. And the innovation of the regulatory system can give new technology a test space, so that it can better serve the needs of society. "Shanghai is not short of new technologies. What is more needed is how to get these new technologies into the industrial production and the people's lives safely and quickly. Go. "Hu Guang said.

Specifically, the “regulatory sandbox” is a small-scale pilot-first mechanism that refers to the promotion of financial innovation and the development of fintech, and to achieve a balance between encouraging innovation and preventing risks. Financial regulators set certain tests. Time and scope to allow licensed financial institutions, technology companies and other entities to test their new financial products, or new financial models, business processes, etc. During the testing process, financial regulatory authorities will lower the entry threshold for test projects, and establish an exemption system to appropriately relax regulatory restrictions.

The “supervisory sandbox” can be presented in the form of policies and regulations. For example, the “supervisory sandbox” in Taiwan is mainly reflected in the “Financial Technology Development and Innovation Experiment Regulation” and three authorized regulations issued by the Financial Supervision and Administration Commission FSCEY; it can also be similar. The "financial technology innovation supervision pilot" test carried out in Beijing; or it exists in the form of a park and supports corresponding measures for enterprises and projects entering specific industrial parks.

Projects that pass the test can apply for authorization from the regulatory authorities even if they fail to meet the requirements of current laws and regulations in order to promote new products on a larger scale. For projects that fail to meet expectations or have adverse effects, the regulatory authority has the right to terminate testing. This can not only encourage financial innovation, but also protect consumers' rights and interests and effectively prevent financial risks.

"This pilot work is of great significance for China to build a world-class fintech ecosystem and form a fintech center with global influence." On January 14, the Beijing Local Financial Supervision and Administration Bureau released the "Beijing FinTech's Regulatory Sandbox." The 'first batch of public announcements' also pointed out the important role of the 'regulatory sandbox'.

There are a total of six projects selected this time, and the planned official operating hours will be distributed from January to March 2020. They are: ICBC "Internet of Things-Based Authentication Management and Supply Chain Finance", and Agricultural Bank "Victory Loan Products "," CITIC Bank Smart Order Products "in which CITIC Bank, China UnionPay, Du Xiaoman Financial and Ctrip participated in cooperation, Baixin Bank" AIBank Inside Products ", Ningbo Bank" Quick Review and Quick Loan Products ", China UnionPay, Xiaomi "Mobile POS Innovative Application" with the cooperation of JK and JD.com.

According to Caixin, all six selected projects were selected from 46 projects previously piloted by Beijing's fintech applications, and the reporting process was based on licensed institutions. Non-licensed institutions must cooperate with licensed institutions before Can enter the pilot.

Mutual Chain Pulse inquired about public information. The pilot project to promote the development of inclusive finance means that obviously, of the six projects, three mainly provide financial services to small and micro enterprises and small and micro business owners. Big data has become the most popular technology among the pilot products, and 5 products have listed it as the main technology. In addition, the blockchain was mentioned once. ICBC's "Internet of Things-based Authentication Management and Supply Chain Finance" project uses the Internet of Things and blockchain as its main technologies.

(Drawing: Interchain Pulse)

In fact, since the People's Bank of China stated that it will launch the “regulatory sandbox”, the call for blockchain financial products to enter the sandbox test has become increasingly high.

However, the mutual chain pulse observes the actual application of the domestic "sandbox". At present, there are not many sandboxes led by government agencies, including Beijing. They are initiated by the Central Bank and the Beijing Local Financial Supervision Administration; the Hong Kong regulatory sandbox is controlled by the Hong Kong Monetary Authority. HKMA is responsible for it; Ganzhou's regulatory sandbox is led by the Ganzhou Municipal People's Government; Taiwan's "regulatory sandbox" is overseen by the Financial Supervision and Administration Commission FSCEY. In addition, Hangzhou and Shenzhen also successively issued “supervised sandboxes” or established supervised sandbox industrial parks, but they were set up by non-profit national (or local) social organizations and the government was absent.

(Drawing: Interchain Pulse)

From the perspective of the national sandbox regulatory product range, blockchain has become the focus of the "regulatory sandbox" test. For example, the sandbox industrial parks in Ganzhou and Hangzhou are mainly targeted at blockchains. Shenzhen also has “regulatory sandboxes” for blockchains. Blockchain technology has appeared in the “supervised sandboxes” in Beijing, Hong Kong, and Taiwan. The product.

The implementation effect of the “regulatory sandbox” is yet to be tested. Can the regulatory agency determine the trend of technology products?

The implementation of the "regulatory sandbox" mechanism worldwide has been rolled out at about the same time as the application of blockchain finance. In the future, blockchain financial products entering the “regulatory sandbox” may increase significantly. The debate over whether to use a "regulatory sandbox" to evaluate blockchain financial products is also getting hotter.

The "regulatory sandbox" originated in the United Kingdom. In 2015, the FAC of the United Kingdom first proposed the core meaning and specific implementation requirements of the regulatory sandbox system, and officially opened the first batch of regulatory sandbox applications in May 2016. After Britain, Singapore, Australia, Hong Kong, China and other places have successively proposed similar plans.

FAC has six focus points: whether the innovation program belongs to the financial industry; whether it is innovative or significantly different from existing products and services; whether it can bring benefits to consumers and the financial industry; whether it has entered the regulatory sandbox test Necessary; whether you have a clear understanding of sandbox rules.

Based on this, the important condition for the implementation of the “regulatory sandbox” is that new financial technology has facilitated the emergence of new financial products. Blockchain has become popular around the world since 2015. It has gradually departed from the inherent impression that it is only a "virtual currency" service, and has been widely used in the real economy. Financial applications are the highlight. According to the statistics of the mutual chain pulse, a total of 846 projects have been implemented in the world in 2019, of which 214 projects have been implemented in the financial field, which is the same as the number of applications in the government field, and ranked first in all major fields.

(Drawing: Interchain Pulse)

The emergence of blockchain technology has connected various types of financial activities at the bottom level, and it is difficult to clearly define the category to which a financial model or financial product belongs. At the same time, in the financial supervision, there are also separate supervisions in various countries. For example, China has the Bank of China Health Regulatory Commission and the China Securities Regulatory Commission. The regulatory compliance of a single supervisory authority can control risks, but it is difficult to form an effective regulatory synergy and lay hidden dangers to the stability of the financial system. In addition, the combination of blockchain and finance makes financial risks more complicated, and the phenomenon of lagging regulatory means, regulatory gaps or overlaps is easy to appear.

Blockchain-based ICO projects that have prevailed in the past, because there were no matching regulatory measures when the ICO first appeared, led to the popularity of Aircoin and Treasury projects, and investors suffered heavy losses. At present, China has explicitly prohibited the financing of the ICO model. However, Canada implemented a “regulatory sandbox” program in September 2017 and included ICOs.

Mutual Chain Pulse Comparison Internationally, with the “regulation sandbox” led by national government agencies, Canada and Singapore have more relaxed policies than the United Kingdom and other countries, preferring to open the way for supervision of new products. For example, the Canadian "regulatory sandbox" accepts cryptocurrency related projects. For fintech innovation companies registered in the Singapore regulatory sandbox, the regulatory agency allows them to engage in business that conflicts with current laws and regulations on the premise that they have been filed. Even if the test fails, they will not be held accountable afterwards. As early as the implementation of the regulatory sandbox system, Singapore made it clear that the sandbox aims to encourage fintech innovation as much as possible, by reducing market access standards, simplifying the entry process, and achieving rapid innovation products or services with minimal compliance costs. Ground operation.

The relaxation of the “regulation sandbox” policy can provide a more favorable environment for the development of new products, but this has also triggered international criticism of the “regulation sandbox”. The “regulation sandbox” is considered insufficient to protect consumer rights. In addition, the implementation effect of the "regulatory sandbox" in Britain and other countries has also been widely criticized, and the "industrial sandbox" has taken the stage.

When the British FAC first proposed a sandbox, three types were mentioned, "regulatory sandbox", "industry sandbox", and "protective umbrella sandbox". The United States first tested the “regulatory sandbox” and later decided that the effect was not significant. Instead, it adopted the “industrial sandbox”. In addition, the United Nations also implemented some “industrial sandboxes”.

(Drawing: Interchain Pulse)

The "supervisory sandbox" is mostly led by the government. Regulators measure the innovation and value of products, while the industrial sandbox uses high technology and tools to evaluate projects. On January 13, Cai Weide, director of Beihang's Digital Society and Blockchain Lab, published an article listing international criticism of the "regulatory sandbox" system and its application effects. The main points of criticism include that financial regulators should not engage in scientific and technological evaluation, that the policy cannot be updated in a timely and effective manner after the implementation of the “regulatory sandbox”, that consumer interests are not considered, that academic research considers them to be of little significance, and that the ultimate beneficiaries of testing are regulators …

However, from the perspective of practical applications, the number of "regulatory sandboxes" in major countries in the world is far more than that of "industrial sandboxes". According to the results of a research project in Australia, Hong Kong, and Luxembourg 2019, there are now 50 countries or regions in the world that have launched a regulatory sandbox program. Earlier in the United Kingdom, there were less than 20 world "industrial sandbox" projects. At present, at least six places in China have launched the “supervised sandbox”, while the “industrial sandbox” is only the “Taishan sandbox” in Qingdao.

From the perspective of inspection content, compared to the “regulatory sandbox”, the “industrial sandbox” is often applied to some scenarios in other specific industries, such as the United States ’pharmaceutical supply chain management blockchain verification algorithm, the United Nations’ ICAO ’s Blockchain industry sandbox.

Therefore, for the development of financial technology, the “regulatory sandbox” is obviously more advantageous, and the financial industry has such a more complex legal policy and regulatory system than other fields. The policy has a greater resistance to the implementation of new products, and regulatory compliance is imminent. . However, regardless of whether it is a “regulation sandbox” or an “industrial sandbox”, the ultimate goal is to promote the rational and vigorous development of new technology products, which must ultimately be submitted to the market for inspection.

Back in China, whether it is the "industrial sandbox" of private voluntary organizations or the "regulatory sandbox" endorsed by the government, they are all in the stage of partial development or pilot. The application of blockchain financial products has just been popularized, and the results still need time to verify. Whether blockchain financial products should be based on policy compliance or technical tool testing is still inconclusive.