CFPB Exploring Regulatory Sandbox, Mulvaney Says

By Lydia Beyoud

The Consumer Financial Protection Bureau is actively working on launching a regulatory “sandbox” for the financial services industry, acting Director Mick Mulvaney said May 29.

A regulatory sandbox is a framework that allows fintech startups and other companies to experiment with new data, tools or business models while in remaining in close contact with regulators.

The CFPB is working “very closely” with the Commodity Futures Trading Commission, Mulvaney said during remarks at a Women in Housing & Finance event in Washington. The CFTC, a swaps and derivatives regulator, has launched one of the most robust sandboxes at the federal level.

The bureau is also “talking to folks about previous work the states have done in that area,” Mulvaney said. Arizona was the first state to enact a sandbox law in March, and begins accepting applications for participation on Aug. 3. Other states like Illinois are actively exploring their own sandbox legislation.

Fintech and other financial services companies generally prefer a single sandbox framework to experiment in, compared to the possibility of a 50-state regulatory mosaic.

But the direction the CFPB takes in establishing its own sandbox could prove pivotal for the success of state efforts. As the chief consumer financial services regulator, the CFPB has the authority to decide whether to coordinate with state regulators, or reserve the right to enforcement action against companies trying to experiment within a state-level sandbox, but that might stumble on compliance with federal regulations.

“Given the growing number of states interested in establishing their own version of a regulatory sandbox, it will be interesting to see how the CFPB’s sandbox reacts to and interacts with state-level efforts, and whether we’re likely to see the first ‘FinTech bridge’ established between a state and federal regulator,” Jackson Mueller, associate director for the fintech program at the Milken Institute’s Center for Financial Markets, told Bloomberg Law by email.

Mulvaney’s stance on CFPB enforcement policy could hearten some companies considering sandbox participation. The acting director, who also serves as the White House Office of Management and Budget director, has repeatedly said he won’t push the bureau to pursue as many enforcement actions against financial services companies.

How he aligns the priorities of a CFPB regulatory sandbox with the agency’s broad enforcement authorities could prove pivotal for companies deciding whether or not to play in a sandbox.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com

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