A limited government think tank in Tallahassee is out with a report that examines how Florida lawmakers can expand ‘regulatory sandboxes’ to boost business innovation in the state. Think of a regulatory sandbox the same way you think of a real sandbox where kids make friends and learn life lessons.
“It’s a defined environment where you can experiment and play, if you will. But Mom and Dad, the regulators are watching not far away,” says Andrea O’Sullivan, director of the Center for Technology and Innovation at the James Madison Institute (JMI).
She says the first regulatory sandbox was created about five years ago in the United Kingdom to fast-track innovation in the financial technology sector, or FinTech.
“Because these startups were small, they might not have a lot of money, they certainly don’t have a ton of lawyers on staff, they were not able to navigate some of the established regulatory processes that big banks had many years of learning to navigate,” O’Sullivan says.
Regulations can constrain businesses in many ways: maybe the company has to be licensed, has to pay fees, or must be audited periodically. Such requirements could serve as a barrier to a company’s entry into the market.
So, Florida lawmakers last year followed the lead of their counterparts in the U.K. and approved a similar sandbox program. It’s designed to help fledgling FinTech businesses begin operations with less government oversight than usual. The program launched in January.
“FinTech companies can currently apply to the sandbox,” O’Sullivan says. “We’ll see the first, I guess you could say cohort this year. We’ll see what they’re able to do.”
Participants are essentially experimenting under the watchful eye of the Florida Office of Financial Regulation. They work for a set period of time on their business model or product.
Firms that successfully complete the sandbox program will graduate into a fully regulated business. Some will fail, finding their vision simply isn’t workable or profitable. But the failure will come at a lower cost than if they had to comply with full regulatory oversight.
“If you fail, you fold up shop and you’ve learned another way not to do something,” O’Sullivan says, calling the program a low-risk way for startups to test ideas.
Her report for JMI encourages Florida lawmakers to consider whether other industries, in addition to FinTech, could benefit from fewer regulations provided by a sandbox program.
Read the original article and listen to the audio from WFSU here.