On 11 December 2023, the European Banking Authority (EBA), European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA) – together, the European Supervisory Authorities (ESAs) – published a report on ‘innovation facilitators’, a term that encompasses innovation hubs and regulatory sandboxes.
The report identifies several benefits and challenges relating to the operation and design of innovation facilitators, and sets out recommendations and considerations for national competent authorities (NCAs), the ESAs and the European Commission with the aim of further enhancing the role and efficiency of innovation facilitators in the EEA financial sector.
The ESAs note that, since the last report was produced in 2019, innovation hubs have improved their operations while maintaining their focus on enhancing firms’ understanding of the regulation and supervisory expectations. They also highlight that regulatory sandboxes have offered the fintech sector a safe environment to test their business ideas, and allowed NCAs to stay up to date with emerging innovations in the financial sector and to better identify cases where the regulatory perimeters may need to be reassessed.
Recommendations made to the NCAs in order to further improve the operation of innovation facilitators and enhance the experience for participating firms including:
- Improving their understanding of the concerns and interests of participating firms.
- Broadening the scope of innovations captured, including at the cross-sectoral level.
- Ensuring effective collaboration among NCAs.
- Continuously evaluating the functioning of innovation hubs and regulatory sandboxes.
The ESAs are also able, through the European Forum for Innovation Facilitators (EFIF) framework, to provide recommendations for future EU-wide initiatives that focus on experimentation. To improve the function of this framework, the report recommends that the ESAs should:
- Re-evaluate the procedural framework for cross-border testing established by the EFIF in 2021.
- Formalise the EFIF’s process to raise co-legislators’ attention to issues identified via innovation hubs or regulatory sandboxes.
Finally, the report proposes that the European Commission should reflect comprehensively on the EU-wide strategy to support financial innovation and the operation of innovation facilitators, in particular regulatory sandboxes.