ESAs recommend steps to improve activities of innovation facilitators across the European Economic Area

The ESAs have issued a comprehensive report on innovation facilitators, encompassing innovation hubs and regulatory sandboxes, with a focus on enhancing their role and efficiency in the financial sector across the EEA. The report acknowledges improvements in the operations of EEA innovation hubs since the last assessment in 2019, emphasizing their continued dedication to enhancing firms‘ understanding of regulations and supervisory expectations. Regulatory sandboxes have proven to be instrumental in providing a secure environment for FinTech sector experimentation, enabling authorities to stay informed about emerging innovations and identify potential reassessments of regulatory perimeters.
To further enhance the operation of innovation facilitators and improve the experience for participating firms, the ESAs recommend that NCAs undertake initiatives such as improving their understanding of participating firms‘ concerns, broadening the scope of innovations captured, ensuring effective collaboration among NCAs, and continuously evaluating the functioning of innovation hubs and sandboxes.
The EFIF, established to promote coordination and cooperation among innovation facilitators in the EEA, is highlighted as a framework through which the ESAs can provide recommendations for future EU-wide initiatives focusing on experimentation. The ESAs propose re-evaluating the procedural framework for cross-border testing established by EFIF in 2021 and formalizing the EFIF’s process to raise co-legislators‘ attention to issues identified via innovation hubs or regulatory sandboxes.
Furthermore, the ESAs call on the EC to conduct a comprehensive reflection on the EU-wide strategy to support financial innovation and the operation of innovation facilitators, particularly regulatory sandboxes. The report provides insights into the landscape of innovation facilitators, noting the widespread presence of innovation hubs and the limited number of countries with active regulatory sandboxes. The ESAs identify benefits and challenges in the operation and design of these facilitators, stressing the importance of addressing reputational and legal risks perceived by NCAs.
The report also delves into the types of inquiries received by innovation hubs and regulatory sandboxes, covering a diverse range of topics such as regulatory requirements, technology use, and suggested changes in the legal framework. It highlights the emergence of new activities, including virtual sandboxes, hackathons, and discussion forums, as well as EU-wide initiatives impacting the financial sector, such as the European Blockchain Sandbox, the DLT Pilot Regime, and AI regulatory sandboxes. The EU Digital Finance Platform, featuring practical tools and a Data Hub for testing new solutions, is recognized as a crucial element supporting innovation in the financial sector across the EU.