The Financial Markets Authority (FMA) announced the launch of a pilot “regulatory sandbox” this Tuesday. The sandbox will run from January to July 2025 and allow firms to test innovative products, services, or business models. The full announcement can be found here.

The impetus for the sandbox derived, at least in part, from a recommendation in the Financial and Expenditure Select Committee’s Final Report on its Inquiry into the current and future nature, impact, and risks of cryptocurrencies, by our own Jeremy Muir, together with academic Dr Alex Sims.

Who needs to read it? Why?

Firms looking to enter or launch a new product or service in the financial services market should read this announcement. The sandbox is also open to firms who want to launch a product or service that simplifies compliance solutions or uses blockchain or regulatory technologies.

What does it cover?

The regulatory sandbox pilot is beneficial for both innovators and the FMA itself. For the pilot, the FMA is looking for participants who:

• have a product ready to be tested in the New Zealand market with customers;
• understand what aspects of existing financial regulation apply to their product or service; and
• have considered where they need guidance from the FMA and why participation in the sandbox will help to their ‘go to market’ plans.

The sandbox provides both startups and established licensed financial institutions with a controlled environment to test new products and services in. It also provides them with an opportunity to adjust their product and service in response to what they learn from the sandbox. 

For the FMA, it intends to gain more insight into the benefits and risks and financial innovations and new technologies. It also intends to improve its ability to assess the viability of innovative products and services.

Using its experience from the sandbox, the FMA expects to react faster and more effectively to regulatory and supervisory problems, and better identify gaps around investor and consumer protection.

Firms must apply to the FMA to participate in the regulatory sandbox. Alongside the criteria listed above, the FMA will also consider the barriers the firm is facing in bringing their product to market, whether the FMA can influence these areas, and the need and readiness of the firm for launch. 

Our view

We welcome the introduction of the regulatory sandbox. The regulatory sandbox will provide firms with a unique opportunity to test and de-risk their product or service concept in a controlled environment. This pilot is a new and great step towards driving more financial innovation within the New Zealand market. 

What next?

We will follow the FMA for updates on the regulatory sandbox pilot and its review of the pilot. In the meantime, firms who are interested in the regulatory sandbox should complete the expression of interest form found here. 

If you have any questions regarding the FMA’s announcement or are seeking guidance on how existing financial regulations may apply to your product or service concept, please contact one of our experts.

This article was co-authored by Ivan Zhang, a Summer Clerk in our Financial Services team.