1、BIS Working PapersNo 901Inside the regulatory sandbox: effects on fintech fundingbyGiulioCornelli,SebastianDoerr,Leonardo Gambacorta and Ouarda MerroucheMonetary and Economic DepartmentNovember 2020JEL classification: G32, G38, M13, O3.Keywords: fintech, regulatory sandbox, startups, venture capital

2、.BIS Working Papers are written by members of the Monetary and Economic Department of the Bank for International Settlements, and from time to time by other economists, and are published by the Bank. The papers are on subjects of topical interest and are technical in character. The views expressed i

3、n them are those of their authors and not necessarily the views of the BIS.This publication is available on the BIS website ().Bank for International Settlements 2020. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated.ISSN 1020-0959 (print)ISSN 1682-76

4、78 (online)Inside the Regulatory Sandbox: Effects on Fintech FundingG. CornelliS. DoerrL. GambacortaO. Merrouche November 3, 2020AbstractPolicymakers around the world are adopting regulatory sandboxes as a tool for spurring innovation in the financial sector while keeping alert to emerging risks. Us

5、ing unique data for the UK, this paper provides first evidence on the effectiveness of the worlds first sandbox in improving fintechs access to finance. Firms entering the sandbox see a significant increase of 15% in capital raised post-entry, relative to firms that did not enter; and their probabil

6、ity of raising capital increases by 50%. Our results suggest that the sandbox facilitates access to capital through two channels: reduced asymmetric information and reduced regulatory costs or uncertainty. Our results are similar when we exploit the staggered introduction of the sandbox and compare

7、firms in earlier to those in later sandbox cohorts, and when we compare participating firms to a matched set of comparable firms that never enters the sandbox.JEL Codes: G32, G38, M13, O3.Keywords: fintech, regulatory sandbox, start-ups, venture capital.Giulio Cornelli ( HYPERLINK mailto:Giulio.Corn

8、elli giulio.cornelli), Sebastian Doerr ( HYPERLINK mailto:sebastian.doerr sebastian.doerr) and Leonardo Gambacorta ( HYPERLINK mailto:Leonardo.Gambacorta leonardo.gambacorta) are at the Bank for International Settlements, Monetary and Economic Department. Ouarda Merrouche is at Universite Paris Nant

9、erre and EconomiX CNRS UMR 7235, 200 avenue de la Republique 92001 Nanterre cedex. ( HYPERLINK mailto:ouarda.merroucheeui.eu ouarda.merroucheeui.eu). We would like to thank Matteo Aquilina, Raphael Auer, Marcel Bluhm, Nick Clark, Jon Frost, Luigi Guiso, Ivo Jenik, Daphnee Papiasse and Manos Schizas,

10、 as well as participants at the BIS internal seminar and the BIS Innovation Hub. The views expressed here are those of the authors only, and not necessarily those of the Bank for International Settlements.IntroductionThe rapid growth of innovative companies that use new technology (so-called fintech

11、s) has the potential to transform the financial sector fundamentally. HYPERLINK l _bookmark0 1 Fintechs hold the promise of spurring competition, leading to sizeable efficiency gains, more choice for consumers and enhanced financial inclusion. However, the potentially disruptive growth of firms offe

12、ring novel products and services poses new challenges for financial stability and consumer protection. HYPERLINK l _bookmark1 2 Policymakers around the world are stepping up their efforts to foster innovation in the financial sector while keeping alert to emerging risks.A landmark initiative was the

13、 creation of the “regulatory sandbox” by the United Kingdoms Financial Conduct Authority (FCA) in November 2015. Sandboxes offer fintechs a controlled testing environment in which they can try out their products on a limited set of customers under restricted authorisation. Testing occurs under close

14、 regulatory supervision: firms receive advice to help them navigate the complexities of regulations and to ease the route to authorization. Regulators, on the other hand, use sandboxes to learn about new financial technologies and emerging trends, as well as to identify associated risks before produ

15、cts are launched for the mass market.A key objective of sandboxes is to foster innovation by facilitating fintechs access to financing at early stages of development. Since fintechs offer new products in an environment of high regulatory uncertainty, they face serious challenges of asymmetric inform

16、ation and often struggle to raise enough capital to develop products and expand. HYPERLINK l _bookmark2 3 By now, around 50 countries have followed the UK and introduced their own regulatory sandbox, often with the goal of nurturing the fintech sector ( HYPERLINK l _bookmark88 Wechsler, Perlman and

17、HYPERLINK l _bookmark88 Gurung, HYPERLINK l _bookmark88 2018; HYPERLINK l _bookmark84 Schizas, McKain, Zhang, Garvey, Ganbold, Hussain, Kumar, Huang, HYPERLINK l _bookmark84 1The Financial Stability Board defines the term fintech as: technologically enabled financial inno- HYPERLINK l _bookmark84 va

18、tion that could result in new business models, applications, processes, or products, with an associated HYPERLINK l _bookmark84 material effect on financial markets and institutions and the provision of financial services ( HYPERLINK l _bookmark63 Financial HYPERLINK l _bookmark63 Stabilit HYPERLINK

19、 l _bookmark84 y Board, HYPERLINK l _bookmark63 201 HYPERLINK l _bookmark84 7). HYPERLINK l _bookmark84 2Fintechs often rely on sweeping technological advancements (such as artificial intelligence, machine HYPERLINK l _bookmark84 learning, blockchain technology, big data analytics, or the internet o

20、f things) that pose significant pri- HYPERLINK l _bookmark84 vacy, regulatory, and law-enforcement challenges. A further risk associated with fintechs is cyber risk HYPERLINK l _bookmark84 ( HYPERLINK l _bookmark35 Aldasoro, HYPERLINK l _bookmark84 Gambacorta, Giudici and Leach, HYPERLINK l _bookmar

21、k35 2020 HYPERLINK l _bookmark84 ). HYPERLINK l _bookmark84 3While investors enthusiasm for fintech start-ups has boomed since 2010, reaching over $200 billion HYPERLINK l _bookmark84 across 5,000 deals worldwide in 2019, investments have been volatile, displaying for example a sharp HYPERLINK l _bo

22、okmark84 decline in 2016 and 2017 (see HYPERLINK l _bookmark91 Figure HYPERLINK l _bookmark84 1). HYPERLINK l _bookmark84 Wang and Yerolemou, HYPERLINK l _bookmark84 2019). HYPERLINK l _bookmark3 4 And yet, despite the wide-spread adoption of sandboxes and significant attention in the media and poli

23、cy circles, little empirical evidence exists on whether sandboxes actually help fintechs raise funding. Nor is there any evidence on the underlying channels that could be at work.In this paper, we analyze how entering the FCAs regulatory sandbox affects fintechs ability to raise funding. We collect

24、unique data on capital raised by fintechs in the UK for the period from 2014q1 to 2019q2. Our sample covers fintechs that joined the sandbox (treated firms), as well as a large group of comparable control firms. Granular data on funding raised, broken down by individual investor, as well as backgrou

25、nd information on firm age, size, industry, location, and CEO background allow us to investigate different channels through which the sandbox affects firms access to capital. Our main finding is that entry into the sandbox is associated with a higher probability of raising funding and an increase in

26、 the average amount of funding raised by around 15% (or $700,000), relative to firms that did not enter the sandbox. Investigating the mechanism, our evidence suggests that regulatory sandboxes reduce information asymmetries and regulatory costs or uncertainty.For identification, we rely on two comp

27、lementary approaches. First, we focus on the sample of firms that are accepted into the sandbox and exploit the fact that these firms entered the sandbox in five different cohorts. Entry is staggered over rounds of six months, allowing us to compare a firms capital-raising activity before and after

28、participation in the sandbox, relative to firms that will enter the sandbox at a later stage. We find a highly significant and economically meaningful effect of entry on capital raised. Relative to firms that will enter the sandbox at a later date, entry into the sandbox is followed by a 14% to 15%

29、increase in capital raised over the following two years. The increase in capital raised corresponds to about one standard deviation.Selection into the sandbox is not random as we discuss in Section HYPERLINK l _bookmark7 2 and the entry date could be correlated with unobservable firm characteristics

30、. Yet, we show that there4At the international level, national regulators take part in the Global Financial Innovation Network, a global sandbox initiative led by the UKs FCA ( HYPERLINK l _bookmark61 Ehrentraud, Ocampo, Garzoni and Piccolo, HYPERLINK l _bookmark61 2020). See also a recent survey by

31、 the World Bank and Cambridge Center for Alternative Finance (CCAF) ( HYPERLINK l _bookmark89 2019) on regulating alternative finance.are no differential pre-trends across firms, and that among the group of firms that enter the sandbox at some point, the specific entry date is uncorrelated with obse

32、rvable firm characteristics. Likewise, our results are robust to controlling for firm age, CEO gender, or location; and to the inclusion of firm fixed effects. These facts mitigate concerns that our results are explained by omitted variables or selection effects. We also find that including time-var

33、ying fixed effects at the industry level does not affect the size or significance of our coefficients in a substantive way, despite more than doubling the R2. In other words, sandbox entry is likely orthogonal to unobservable time-varying industry characteristics, further reducing potential concerns

34、 about self-selection and omitted variable bias ( HYPERLINK l _bookmark37 Altonji, Elder and Taber, HYPERLINK l _bookmark37 2005; HYPERLINK l _bookmark78 Oster, HYPERLINK l _bookmark78 2019).To further strengthen identification, in a second step we compare sandbox fintechs to a set of control firms

35、that never enters the sandbox. Using a coarsened exact matching approach, we select a sample of matched control firms that are statistically similar in terms of observable firm characteristics: age, CEO gender, industry, and location. We then estimate a difference-in-differences specification with f

36、irm and time fixed effects, comparing firms that enter the sandbox to those that never enter the sandbox. In the matched sample, we find almost identical effects to our baseline strategy: entry into the sandbox is associated with a relative 15.1% increase in funding raised.After establishing that sa

37、ndbox entry improves firms access to funding, we inves- tigate the underlying mechanisms. Specifically, we distinguish between the following channels: first, the sandbox is a marketing device, i.e. simply entering the sandbox leads to publicity and hence more funding, irrespective of actual firm per

38、formance or support. Second, the sandbox serves as a stamp of approval, i.e. it reduces informa- tion asymmetries, as being accepted into the sandbox signals high quality. And third, the sandbox reduces regulatory uncertainty or costs, i.e. the dedicated case officer helps sandbox firms in navigatin

39、g uncertainties about legal challenges to their services or products.Our results suggest that the sandbox reduces information asymmetries and reg- ulatory costs. We find no support for the notion that sandboxes serve purely as amarketing device. HYPERLINK l _bookmark4 5 First, we show that the posit

40、ive effect of sandbox entry on capital raised is particularly pronounced for smaller and younger firms, i.e. firms that are usu- ally considered more opaque and hence subject to severe informational frictions ( HYPERLINK l _bookmark69 Hall HYPERLINK l _bookmark69 and Lerner, HYPERLINK l _bookmark69

41、2010). We find similar results when we compare firms by type of fund- ing. Entry into the sandbox increases deal volume especially for venture capital deals, which are more information-sensitive, compared to other types of deals. Second, we show that entry into the sandbox is followed by an increase

42、 in first-time investors and in the share of investors that are based outside the UK. Since new investors and investors that are located further away from the issuing firm are likely to face higher information asymmetries, we interpret this finding as evidence that the sandbox reduces information as

43、ymmetries. Finally, we show that firms with a CEO who has a personal background in (financial) law benefit less from entry into the sandbox. This is in line with anecdotal evidence that CEOs without prior experience in financial regulation benefit more from the guidance provided by case officers ( H

44、YPERLINK l _bookmark56 Deloitte, HYPERLINK l _bookmark56 2019). If sandboxes promote all firms through marketing irrespective of their underlying features then we should not find any differential effects across firm types.In principle, investors could learn about firms as their quality is gradually

45、revealed to the market over time, irrespective of entry into the sandbox. Firms ability to raise funding would then increase in lockstep. Instead, if investors learn about the quality of a firm because of the sandbox certification, firms ability to raise funding will increase immediately upon entry.

46、 We find that the strongest effects on funding raised occur in the first two quarters upon entry. Four quarters after entry, the sandbox has a modest positive, but insignificant, effect on funding raised. This pattern hence suggests that entry into the sandbox acts as a certificate and signals firms

47、 quality. The increase in funding raised does not reflect a gradual revelation of firms quality.We provide a set of further robustness checks. We rule out that the effect of the sandbox is driven purely by an increase in the supply of funds. We use matched investor-5In principle, a marketing effect

48、could also disproportionately affect smaller or younger firms by raising awareness among investors. As long as the sandbox selects innovative firms, the marketing effect and stamp of approval effect would be complementary. For expositional clarity we decide to treat both effects as distinct.firm dat

49、a and include investor*time fixed effects. This approach allows us to absorb any unobservable time-varying changes affecting investors. For example, contemporaneous tax reliefs or preferential treatment for fintech investments could act as confounding factors. We show that a firm entering the sandbo

50、x is more likely to raise capital even if we hold changes in the supply of capital fixed. We also use alternative estimation methods to account for the presence of zeros in our dependent variable, for example negative binomial regressions, and show that our results are insensitive to the chosen meth

51、od. Further, we confirm our findings when we use nearest neighbor matching or propensity score matching instead of coarsened exact matching.Despite the widespread adoption of sandboxes, to the best of our knowledge there exists no micro-evidence on their effectiveness. Regulatory sandboxes pursue di

52、fferent goals, for example promoting innovation and competition, increasing the consumer sur- plus, and facilitating fintechs access to finance. While the short time span since their inception does not allow us to evaluate effects on consumer surplus or financial stability, our paper provides first

53、evidence that sandboxes help young and innovative fintechs to raise capital and hence achieve at least one of their explicit goals. Our results suggest that sandboxes could become a crucial policy tool for harvesting the benefits of financial innovation.Our paper contributes to the current debate on

54、 public policies to foster innovation ( HYPERLINK l _bookmark77 OECD, HYPERLINK l _bookmark77 2017; HYPERLINK l _bookmark39 Auer, HYPERLINK l _bookmark39 2019). HYPERLINK l _bookmark5 6 A recent literature has established that fintechs face serious obstacles to raising capital ( HYPERLINK l _bookmar

55、k45 Block, Colombo, Cumming and Vismara, HYPERLINK l _bookmark45 2018; HYPERLINK l _bookmark68 Haddad and HYPERLINK l _bookmark68 Hornuf, HYPERLINK l _bookmark68 2019), despite the fact that their innovation provides value to innovators and investors ( HYPERLINK l _bookmark52 Chen, Wu and Yang, HYPE

56、RLINK l _bookmark52 2019). Market failures can lead to sub-optimal private- sector expenditure on research and development, necessitating public policies to foster innovation, eg through business incubators or accelerators ( HYPERLINK l _bookmark66 Gonzalzez-Uribe and Reyes, HYPERLINK l _bookmark66

57、2020). HYPERLINK l _bookmark6 7 Policy makers hence need to promote innovation in the financial sector, but6For literature on financing innovation, see HYPERLINK l _bookmark75 Kerr and Nanda ( HYPERLINK l _bookmark75 2015); HYPERLINK l _bookmark60 Edler and Fagerberg ( HYPERLINK l _bookmark60 2017);

58、 HYPERLINK l _bookmark46 Bloom, Van Reenen and Williams ( HYPERLINK l _bookmark46 2019). The discussion gained prominence in light of the decline in dynamism and productivity growth since the Great Recession ( HYPERLINK l _bookmark58 Doerr, Raissi and Weber, HYPERLINK l _bookmark58 2018; HYPERLINK l

59、 _bookmark57 Doerr, HYPERLINK l _bookmark57 2019; HYPERLINK l _bookmark59 Duval, Hong and Timmer, HYPERLINK l _bookmark59 2020).7 HYPERLINK l _bookmark43 Biais, Bisiere, Bouvard and Casamatta ( HYPERLINK l _bookmark43 2019) show that equilibrium investment in computingcapacity can be excessive. HYPE

60、RLINK l _bookmark50 Brown and Davies ( HYPERLINK l _bookmark50 forthcoming) show that early-venture fundraising by entrepreneurs can be inefficient if information is costly, leading the entrepreneur to undertake badwithout compromising data privacy, financial stability or consumer welfare. HYPERLINK