Estonia, with partners, just kicked off work to establish a ”regulatory sandbox” – a format for testing innovative financial products under supervision of the competent authority.

An inaugural workshop recently gathered more than 35 people, notes news site Finextra.

The project is promoted by the European Bank for Reconstruction and Development (EBRD) together with Estonia’s Ministry of Finance.

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Shortens path to concept

By forming a safe space where banks and startups can test new concepts and products, the country hopes to push its position as a fintech hub and shorten the process of licensing and application for startups.

The EBRD, together with the European Commission and Estonian authorities, have set a three-month deadline to design the framework for the sandbox before presenting suggested reforms to the Estonian government, according to the Finextra article.

The sandbox is defined

The sandbox metaphor is not picked randomly. In a report last year, the concept was discussed in detail in a joint report by the European Securities and Markets Authority (Esma), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority.

In the summary of that report, the three EU authorities write the following: ”Innovation facilitators typically take the form of ‘innovation hubs’ and ‘regulatory sandboxes’. Innovation hubs provide a dedicated point of contact for firms to raise enquiries with competent authorities on FinTech-related1 issues and to seek non-binding guidance on regulatory and supervisory expectations, including licensing requirements. Regulatory sandboxes, on the other hand, are schemes to enable firms to test, pursuant to a specific testing plan agreed and monitored by a dedicated function of the competent authority, innovative financial products, financial services or business models.”