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Arizona's 'sandbox' program

for fintech innovators

Reasonable parameters

An applicant to Arizona's sandbox program must
demonstrate it has a new kind of technology that addresses
a problem or provides a benefit that is not known by the
state's attorney general to have a comparable widespread
offering in the state. An applicant must also include
information about the benefits and risks to consumers
of using its product, and how its innovation is different
from other products or services available in Arizona.
Each applicant must provide a detailed plan for testing
and monitoring its product, as well as ensuring consumer
protection if its product fails.

In addition, each applicant must also demonstrate it has
established a location, whether physical or virtual, that
is adequately accessible to the attorney general and from
which testing will be developed and performed, and
By Jose Herndon where the applicant will maintain all required records,
Global Legal Law Firm documents and data.
he financial services industry contends with Arizona's program will be open to companies with
enormous regulatory hurdles and compliance products that would normally require licensing from
costs that can stifle and discourage innovation. Arizona's Department of Financial Institutions, for
T It costs tens of thousands of dollars, and many example, money transmitters, consumer lenders, debt
months of compliance work, for a startup to establish itself management companies, mortgage brokers and deferred
in just one state. Moreover, fintech firms must also obtain presentment companies. Participants must also comply
licenses across all 50 states to operate nationally, which with all other Arizona laws, including consumer fraud
can take several years and cost millions of dollars. and any other state laws applicable to financial products
or services as determined by the attorney general.
Fortunately, fintech regulatory "sandboxes" at the state
level will allow participating companies to experiment Each participant in Arizona's sandbox program will
with, develop and test innovative financial technology be allowed to have two years in the sandbox, with the
products and services in a controlled environment that
affords adequate consumer protection without requiring
the participating companies to incur the time and expense One promising provision of Arizona's
required to become fully licensed under state law. program is "passporting" (which is
currently available under European
Fintech regulatory sandboxes are nothing new. Numerous
countries, including Australia, Canada, Russia, Union law between Member States)
Switzerland and a number of countries in Asia and the which will allow a participant in
Middle East, have utilized this concept since the United Arizona's program to operate in other
Kingdom implemented the first sandbox in 2015. Earlier
this year, Arizona was the first U.S. state to implement jurisdictions with similar programs, and
a "sandbox" program. Illinois introduced legislation to likewise allow participants in another
establish its own sandbox program. Others will likely state's sandbox to enter into Arizona's
follow.
sandbox program.

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