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A new bill in Congress would create a “regulatory sandbox” for fintech innovators and folks have been asking us about it.

So here are our thoughts. H.R. 6118, introduced by Rep. Patrick McHenry seems to emulate the sandbox approach taken by governments like the UK and Singapore.

A sandbox allows a firm with an innovative product or service to petition a regulator to be exempt from the standard set of rules that would apply and instead enter into an enforceable compliance agreement tailored to the specific firm and product. This provides some real benefits to companies: for one, they can find more flexible paths toward financial regulatory compliance. Also, they get a single point of contact; not just a single agency to deal with but a dedicated contact person in that agency to focus on their particular regulatory issues.

Sandboxing is an approach that we’ve applauded in the UK and we’re happy to see Congress looking to replicate in the U.S. The McHenry Bill goes as far as it can to create a regulatory sandbox within the constraints of the U.S.’s federal system of government. The challenge it faces is that unlike the UK, the U.S. does not have a unitary government with a single financial conduct regulator. Instead, fintech firms are potentially regulated by 50 different state regulators and by a dozen federal agencies. The question is whether entering into a sandboxing agreement with one federal agency would clearly preempt all the other federal agencies and state regulators that may have a claim of jurisdiction over the firm.

We’re happy to see this approach being considered in the U.S. and impressed by Rep. McHenry’s leadership in pursuing it. And while we’re very optimistic about the approach, we recognize the challenges the approach will face in the U.S.