The Central Bank's Consultation Paper on its approach to innovation engagement in financial services (CP 156) outlined its plans to enhance its Innovation Hub to drive more informed engagement with industry, and set-up an Innovation Sandbox Programme to focus on "early-stage development of selected innovative initiatives". Read our CP 156 insights here.
The Central Bank confirmed yesterday that the Innovation Sandbox Programme will be established later this year. Themes and a call for potential participants will be issued over the coming months and the first Programme will begin in Q4 2024. Anyone (e.g. start-ups, new entrants, already-authorised firms and academics) involved in developing innovative products and services for the financial system will be able to apply to join the Programme, which will give regulatory advice and support to innovative projects that promote better outcomes for society and the financial system.
Arising from feedback received during the CP 156 consultation process (the Feedback Statement is here), the Central Bank will increase the Programme's duration to a minimum of 6 months for each cohort of successful applicants, and no longer plans to operate the Programme in conjunction with a third party (the Central Bank will be responsible for programme management and participant engagement).
As part of CP 156, the Central Bank also proposed enhancements to the Innovation Hub (a more structured engagement process, enhanced outreach, regionally-focused roundtables, themed workshops, participation in innovation activities to better understand innovation trends, and the launch of a digital centre for knowledge-sharing). It is working on those enhancements on an ongoing basis, and also published its Innovation Hub – 2023 Update this week, giving a useful snapshot of engagement with the Hub in 2023, and the early part of 2024. Notable points include:
- The Hub engaged with 66 firms in 2023 (up 20% on 2022) with an increased number of engagements from small and micro sized firms in the early stages of development.
- The highest volume of enquiries (30%) came from firms in the cryptoasset and blockchain sector (consistent with previous years). Many of the 2023 enquires related to the upcoming EU Markets in Crypto Assets Regulation (MiCA). Keep an eye on our Horizon Scanner: Finance for the latest on MiCA – the framework for stablecoins (asset-referenced tokens and e-money tokens) will apply from 30 June 2024, and the Central Bank plans to run an industry event in July 2024, setting out its authorisation and supervisory expectations for in-scope firms, and will formally launch its expectations afterwards. It plans to open its MiCA 'authorisation gateway' in Q3 2024.
- Enquiries from RegTech firms increased to 23% of total enquiries.
- 21% of enquiries were from the payments sector. Many related to the Central Bank's authorisation process for payment institutions and e-money firms (read our recent insights on the Central Bank's supervisory expectations here). Other enquiries related to emerging developments such as the proposed digital euro, and the planned changes to the EU's payment services framework.
- 80% of all 2023 enquires were from unauthorised firms (many were RegTech firms looking to show their products/services to the Central Bank rather than requiring authorisation at the moment). Those products/services included ones relating to compliance with AML/CFT obligations, operational resilience requirements, and other regulatory reporting requirements. The Central Bank also noted a trend in RegTech firms looking at the use of AI in their products. AI is one of the Central Bank's key priorities over the next two years (as signposted in its Annual Report 2023 and Annual Performance Statement 2023-2024 (read our insights here) and in its Regulatory and Supervisory Outlook Report 2024 (read our insights here and here)).
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.