On 8 November 2023, the Central Bank of Ireland launched Consultation Paper 156 – Central Bank approach to innovation engagement in financial services.
Taking on board industry feedback and following Department of Finance recommendations on the fintech ecosystem, the Central Bank plans to develop its approach to financial innovation by:
- Enhancing its existing Innovation Hub and engagement model; and
- Introducing an Innovation Sandbox Programme.
Innovation Hub enhancements
The Innovation Hub is the Central Bank’s dedicated point of contact for Fintechs (start-ups and incumbents) to ask questions and seek non-binding guidance on financial products, services and processes. The current Innovation Hub has been in operation since April 2018 and has seen 375 engagements to date. Proposed enhancements to be rolled out by the Central Bank, continuing into 2024, include:
Structured engagement process
- Pre-engagement outlining regulatory expectations, timelines and other relevant information.
- Standardised form.
- Follow-up engagement on the progress of the innovation.
Outreach and engagements
- Regionally focussed roundtables and events for outreach and to promote Innovation Hub activities.
- Annual themed workshops involving industry, academia, etc. to understand emerging trends and future risks to consumers.
Events and activities
- Irish, EU or international sector/theme-specific programmes.
- EU and international forums.
- Innovation activities (including Hackathons, Incubators, Springboard, and Tech Sprints)
A digital centre for knowledge sharing is to be launched. It is envisaged that content will be developed to include FAQs, case studies, best practices, webinars and links to similar knowledge hubs and digital platforms.
Innovation Sandbox Programme
Regulatory Sandboxes aim to benefit regulators and firms in understanding the risks and opportunities of innovation by monitoring the financial product, service and/or business model throughout a testing phase. The Regulatory Sandbox Programme is intended to complement the Innovation Hub and will be open to authorised firms, start-ups, new entrants, and academic projects.
The programme is intended to connect innovators and Central Bank experts and accelerate the development of projects through workshops, guidance mentorship, and educational components to promote safe and high-quality innovative financial products and services.
Although the consultation paper mentions that in some instances, discretions may be available from the regulator throughout the testing phase of the Innovation Sandbox programme, the Central Bank clearly states that the programme will not provide any derogations or waivers from regulation and there will not be digital testing of products with consumers.
The programme will operate in the following stages:
- Thematic approach – An evaluation panel will identify the key themes of the current/next phase of the programme.
- Call for proposals – An annual call for proposals will look for third-party operators to partner with the Central Bank to deliver the programme.
- Call for applicants – Applicants can apply at this stage subject to certain limitations. The Central Bank will prepare pre-admission related documentation and applicants will be advised whether their application has been accepted.
- Innovation Sandbox Programme – The successful applicants will be brought through a specific programme over a pre-defined period and their project will receive relevant developmental support. This developmental support will come in the form of sessions on regulatory approach, provision of sector expertise, regulatory case studies and dedicated workshops.
- Off-boarding/exit – Programme participants should have a clear understanding of the next steps for engagement with the Central Bank and the regulatory framework.
The consultation period is open for responses until 8 February 2024.
Sandbox activity outcomes will be shared on an annual basis and costs of the enhanced approach to innovation by the Central Bank will be funded by the industry.
For further information on this consultation please see the Central Bank website.
Contributed by: Jane Balfe