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Why Did Arizona Create A Regulatory Sandbox Specifically For Fintech?

March 9, 2019 9:54 am
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Benzinga's Fintech Focus Podcast features conversations with the biggest names in fintech. Subscribe to the Fintech Focus newsletter to get a roundup of industry news delivered to your inbox weekly, and check out upcoming programming at Benzinga events.
This week’s episode of the Fintech Focus podcast is going local. We’re heading west to Arizona where fintech startups are being welcomed with open arms into the state’s fintech regulatory sandbox.  
Last year, Arizona became the first state to launch a regulatory sandbox specifically for fintech. Spearheaded by State Attorney General Mark Brnovich and inspired by regulatory sandboxes in Asia and Europe, lawmakers are hoping the initiative will put the state’s fintech scene on the map. 
To talk us through the thought process behind it, which types of companies they’re looking for, and what the terms of the sandbox are, we caught up with Evan Daniels, the Arizona Fintech Sandbox’s in-house counsel. Enjoy. 

Interview Highlights

You are the general counsel for the Arizona Fintech Sandbox. Explain exactly why that exists.
The Arizona Fintech Sandbox was created as a way to foster innovation in Arizona. The fundamental idea behind a regulatory sandbox is that it involves a trade. It's a trade between existing state regulations and complying with those in the normal course of things before you could start offering certain types of products or services. A business would need to obtain a license from the state regulator here in Arizona that regulates those things.
What the sandbox does is it lowers some of those barriers to entry in exchange for some more direct involvement with a regulator early on. The trade-off is that you don't have to comply necessarily with all of the requirements that we have on the books. You get a license, but in exchange, you have to tell us, the Attorney General's Office, exactly what it is you want to test, and give us access to your books and records. We get to ask a lot of questions to make sure we fully understand the product before it's approved to begin testing.
What is the fintech scene like in Arizona? It's not the first place I would have guessed to have launched the regulatory sandbox for fintech.
I think we're looking and hoping that this program draws more fintech to Arizona. I mean, certainly as the regulator, I deal with who we have here present in the state, but I think the idea was looking at the way this industry is spread out across the United States.
For a state like ours that's growing, the Phoenix Metropolitan Area is, I think, a top five, maybe top six in terms of size and population. For a growing state like that, we've got to be creative in thinking about how to attract some of these new ventures and new ideas. Now, that's to say there isn't tech here and there isn't a financial presence of established companies here. But a program like this, I think the thought is that it can be used to foster innovation and make Arizona an attractive place to come do business.
What is the ultimate best case scenario for the sandbox?
I think our best case scenario is that businesses are able to come in, test their ideas, and, of course, we hope that they're successful. We hope that the idea that they have they're able to build it out and offer it and there's value in what is being offered and consumers see the value and benefit from it. And they go from being a sandbox participant to being a fully licensed business in the state of Arizona. I think that's of course the best case. 


We don't see our role though as ensuring that every test is successful. To our mind it's entirely possible that a test could prove to not be successful. And in that case, the best case scenario is that a wind down occur where no consumers harmed, no one loses their money. Everybody understands exactly the risk that they're taking in using the product or service. And we live in a marketplace where not everything works out unfortunately. And recognizing that, we view our role as the Attorney General, as making sure that when that happens consumers aren't harmed as a result.

Read the full transcript here.

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