Governor Doug Ducey has signed House Bill 2434 into law making Arizona the first state in the nation to enact a regulatory fintech “sandbox.” Arizona joins countries such as the United Kingdom, Singapore, United Arab Emirates, and Australia in encouraging fintech investment by instituting sandboxes. The bill was sponsored by Representative Jeff Weninger.
In Arizona’s sandbox, startups, entrepreneurs, and even established companies can launch products on a limited, temporary scale to consumers to test innovative products, services, business models, and delivery mechanisms in the real market without incurring the regulatory costs and burdens that would otherwise be imposed. The Arizona Attorney General’s Office will administer the sandbox.
The bill also includes a reciprocity provision permitting the Attorney General to enter into agreements that would allow Arizona sandbox participants to operate in other jurisdictions that establish similar programs.
Currently, it can take a startup several months and tens of thousands of dollars in fees, compliance costs, and legal expenses to navigate the regulatory maze in just one state. This slow-moving and expensive process is unacceptable in an industry like fintech that is rapidly changing and developing.
Overview of the regulatory sandbox program:
- The Office of the Attorney General is responsible for approving and providing entry of applicants into the sandbox.
- The sandbox program will be administered by the Civil Division of the office.
- The regulatory sandbox will likely be active and ready to accept applications by late 2017.
- Application fee amounts will be determined by the Attorney General’s Office at a later date.
- Sandbox participants must provide detailed information regarding their service or product on a form prescribed by the Attorney General’s Office.
- Sandbox participants will have 24 months after their approval date to test their innovative financial product or service.
- A sandbox participant may be granted an extension of up to one year upon request to the Attorney General’s Office.
- Consumers must be Arizona residents.
- The sandbox provides caps on the numbers of individuals who may participate in a particular sandbox agreement and caps on the amount of loans that may be issued.
- The Arizona Consumer Fraud Act guides all products and services offered in the sandbox and any product offered in the sandbox must comply with all statutory limits and caps in Arizona law related to financial transactions.
- The program ends on July 1, 2028.