Crypto Startups Don't Need Sandboxes, They Need Greenhouses

I've written before about how I believe regulatory "Sandboxes" for financial services innovation serve a useful function and, in absence of federal action in the U.S., states should establish them.

Since that time Arizona passed legislation to establish a sandbox, other states are trying, and there are continuing and active discussions in my home state of Delaware around how to support financial services innovation.

During my testimony at a Maryland Financial Consumer Protection Commission hearing on cryptocurrency, I took the opportunity to give a plug for regulatory "Sandboxes" because I think crypto and blockchain projects are excellent candidates for such programs.

She touched on a number of different topics across the financial services landscape and the speech is largely a rebuke of the current administration, its policies, and its overall regulatory worldview.

"There are those who argue that the mere utilization of financial technology alone somehow grants them an exemption from the rules that banks and other financial institutions follow to manage risk and protect consumers. I have been highly vocal on myriad fronts in my opposition to this view, which would permit any company that calls itself a fintech to engage in a form of regulatory arbitrage, either with no regulator or in a so-called sandbox."

I don't disagree with the overall sentiment of Vullo's statement: the financial services industry is highly regulated for a reason, and the responsibilities of a financial services company should be higher than that of a photo-sharing app.

Where I disagree with Vullo is in the representation of so-called "Sandboxes" as a no-man's land of unregulated financial services offerings and the companies who want to discuss new ways of testing financial technologies as "Toddlers."

It reinforces the visual that Vullo portrays in her speech and it portends a lack of seriousness that is needed when discussing about financial services.

Namely, it's a place that financial technology solutions can be safely seeded, fed, and controlled.

A few months ago, the UK Financial Conduct Authority published a report detailing its "Lessons learned" from experiences over the past several years.