In September 2020, Austria introduces its regulatory sandbox. This is welcome news, with Austria joining several other European countries – including Denmark, Lithuania, the Netherlands, Poland and the UK – that offer such a test environment. Having a sandbox should help make Austria an even more attractive location for fintechs.
It is also a milestone on a long and winding road. Plans, including draft legislation, for implementing a regulatory sandbox in Austria arose in 2019, but were put on hold for nearly a year. On 7 July 2020, the national council (Nationalrat) passed an amendment to the Financial Market Authority Act (Finanzmarktaufsichtsbehördengesetz) providing for a sandbox at the Financial Market Authority (FMA). Unless the federal council (Bundesrat), the second chamber of the Austrian parliament, expresses its opposition within eight weeks, the bill will be published in the official journal and enter into force on 1 September 2020. From this date, it will be possible to apply to use the sandbox.
How does the sandbox work?
In the sandbox, firms can test innovative business models that are still under development (so-called ‘sandbox business models’) under the supervision of the FMA. The aim is to see if they are viable from regulatory point of view. If not, firms can change their proposition before committing to a broader roll-out, thus saving costs and time.
Testing occurs over a period of up to two years in accordance with a plan and within certain parameters, which are set by the FMA in consultation with the relevant firm. Firms included in the sandbox are required to actively participate in the process. The FMA will publish a short summary of each sandbox business model on its website (without disclosing business or trade secrets).
Who can benefit?
The sandbox is open to:
- not-yet-regulated financial market newcomers – firms considering a sandbox business model subject to supervision by the FMA. Hence, it must be at least theoretically possible that the business model will require some kind of authorisation from the FMA (ie a licence, approval, consent or registration);
- already-regulated financial market players – firms that are already authorised by the FMA but that want to test a sandbox business model; and
- other (eg technology) firms in fintech partnerships – firms that do not require authorisation from the FMA. They can apply if they do so together with a regulated financial market player in respect of a sandbox business model.
What conditions have to be met?
To participate, further conditions apply:
- Innovation – the sandbox business model must be based on information and communication technology. This requirement should be read broadly and in a technology-neutral way. Such innovations include solutions for the (digital or other) transfer, storage and processing of language, text, static and moving images, and data, and will generally cover any activities of fintechs.
- FMA relevance – the sandbox business model must fall within the FMA’s authority. For example, business models requiring no authorisation at all or an authorisation for which the FMA is not competent (eg a trade licence) are excluded. Also, if one of the European Central Bank, the Single Resolution Board or a European supervisory authority is the sole competent authority, the business model is not eligible.
- Public interest – the sandbox business model must (especially due to its innovative nature) be in the wider economic interest.
- Acceleration of market maturity – inclusion in the sandbox must accelerate the market maturity of the sandbox business model.
- Test readiness – apart from the regulatory questions to be clarified in the sandbox (see next point), there must be no fundamental technical or legal obstacles to the sandbox business model’s implementation.
- Clarification of open regulatory questions – participation in the sandbox must allow for the clarification of open regulatory questions. This excludes any business model that is already authorised by the FMA or on which the FMA has already issued opinions.
- No negative implications – the sandbox business model must not constitute a threat to financial market stability or consumer protection. This requirement was added to the version of the draft bill circulated last year to bring the Austrian sandbox rules further in to line with other countries.
How can I apply?
Firms wanting to participate in the sandbox can apply to the FMA, which then decides – with the help of an advisory board set up at the federal ministry of finance – whether to add the firm to the sandbox.
Applications can be made from September 2020 but it is advisable to start preparing (eg drafting business plans and collecting supporting information) as soon as possible.
For more insights into innovation hubs and regulatory sandboxes in Europe, including their political and regulatory context and our thoughts on the advantages and criticism of these concepts, see our previous blog.
We are happy to discuss with you and answer any queries you may have in relation to inclusion in regulatory sandboxes in Austria and across the globe.