The Arizona Attorney General’s Office has opened the first fintech sandbox in the United States, enabling financial services startups to bypass red tape and begin testing their products with live consumer data.
Currently, navigating state regulatory requirements can take several months and cost a startup company tens of thousands of dollars in fees.
Inviting applications from startups to join the programme, Arizona Attorney General Mark Brnovich, says: “Arizona has always been a state for big ideas and trailblazers, and this is just one more place where we are primed to be first. Our fintech sandbox will open the doors to economic growth, new jobs, and innovative products that can make everyday life easier and safer.”
The move comes a week after the US Treasury Department called for a radical overhaul of financial technology regulation, backing a new national fintech charter, the introduction of sandboxes, and the opening up of access to consumer data.
The Arizona sandbox has been in the works for some time. Paul Watkins, the lawyer who helped craft the rules governing the opening of the sandbox was recently recruited by the US Bureau of Consumer Financial Protection to create an equivalent system for the agency.
Not all US regulatory bodies are onboard with the idea.
Hester Peirce, a Republican who became an SEC commissioner in January, recently took a swipe at the trend, arguing that the sandbox approach places regulators and the regulated too close together.
Mario Vullo, superintendent of the New York Department of Financial Services has been more vociferous, stating: "The idea that innovation will flourish only by allowing companies to evade laws that protect consumers, and which also safeguard markets and mitigate risk for the financial services industry, is preposterous.
"Toddlers play in sandboxes. Adults play by the rules."
In Arizona, the sandbox will be administered through the Consumer Protection & Advocacy Section of the Arizona Attorney General’s Office with a brief to act quickly if necessary to protect consumers, stop deceptive acts, and work with entrepreneurs to solve problems.
Brnovich says while this programme encourages innovation by easing some regulations, his office remains committed to "enforcing applicable laws and will not tolerate failures to maintain consumer safeguards".