Innovation has the ability to create opportunities, improve inefficiencies, increase competition, drive scale and improve the reach and value of financial products and services. However, innovation also comes with risk, and due to the novel nature of innovation, it is often not fully accommodated in current regulatory frameworks.

Given that innovation brings with it both benefits and risks, it is the regulator’s role to proactively consider the trade-offs between the two, which requires the regulator to balance its mandate to develop the market with its mandate to protect consumers.

The first note explored approaches to regulating for responsible market innovation, with particular focus on the test-and-learn approach as well as the concept of the regulatory sandbox, underpinned by it. Drawing on case study country examples, it explores the potential benefits, prerequisites and considerations required by regulators to effectively implement approaches to encouraging innovation in their markets.

This focus note unpacks the range of tools available to financial sector regulators to regulate for innovation in the changing financial services landscape. It serves as a toolkit for regulators on how they can better encourage and facilitate innovation in their markets, whilst protecting consumers thereby fulfilling both market development and consumer protection mandates.

This “living” framework has its genesis in insurance; however, its applicability spans the entire financial sector, striving to guide decision makers regardless of the jurisdiction’s divisions of roles, or the regulatory and supervisory model in place.

Read the report here.