John Collins, an affiliate at the Berkman Klein Center at Harvard University wrote an article about why crypto-related startups do not need Sandboxes, but instead greenhouses. Mr. Collins, who is a former head of policy at Coinbase, said that sandboxes for financial services innovation work as a useful function and states should establish them.
The state of Arizona has already passed a legislation that establishes a sandbox, and other states are trying to do the same. In Delaware, the homestate of John Collins, there are active discussions about these topics.
During his testimony at the Maryland Financial Consumer Protection Commission hearing on cryptocurrencies, he said that it is important to give a plug for regulatory ‘sandboxes’ because, for Mr. Collins, cryptocurrency and blockchain projects are excellent candidates for these programs.
Then, he commented on the speech made by maria Vullo, the Superintendent of the New York Department of Financial Services. She talked about different topics in the financial services landscape.
He said that a specific part of her speech called his attention:
“There are those who argue that the mere utilization of financial technology alone somehow grants them an exemption from the rules that banks and other financial institutions follow to manage risk and protect consumers. I have been highly vocal on myriad fronts in my opposition to this view, which would permit any company that calls itself a fintech engage in a form of regulatory arbitrage, either with no regulator or in a so-called sandbox.”
Then she says that sadbox is where toddlers play. “Adults play by rules and if you engage in banking activities, that means you are responsibly regulated in order to protect the customers.”
Collins says that he does not disagree with the overall sentiment of Vullo’s statement. But he has also commented that the financial services industry is highly regulated for a reason, and that the responsibilities of companies operating in this field shouldn’t have the same responsibilities as a ‘photo sharing app’.
But, Mr. Collins disagrees with Vullo in the Sandbox point. He explains that her description of sandboxes is more like quicksand, dangerous, and inaccurate. Moreover, he explains that this is not what governments are implementing around the world.
But why is that happening? He thinks that the term ‘sandboxes’ is not an accurate one.
He says that Vullo lacks seriousness that the discussion about financial services deserves. Instead, he proposes the term ‘Greenhouse’ from Rob Morgan, and former colleagues at the American Bankers Association. For him, this definition represents more accurately what is being attempted.
‘It’s a place that financial technology solutions can be safely seeded, fed, and controlled,’ he says.
Those companies that grow to potential, are moved to the real world, and those that fail, will have new seeds. Greenhouses aims to solve the problem and tensions between innovation and technology. Testing is necessary for the development of good technology. Disallowing it inhibits innovation, it is possible to see poorer technologies and pushes innovators into gray areas.
Greenhouses would allow solutions to be examined in real time rather than the current model of ‘trust but verify.’
Some months ago, the United Kingdom’s Financial Conduct Authority (FCA) published a report in which it explains the ‘lessons learned’ from experienced in the past several years.
But of course, there are still problems in the implementation and execution of these kinds of programs. Collins mentions that Jackson Mueller of the Milken Institute gave his comment on the issue and said that picking winners and losers, maintaining fairness, finding solutions is not an easy task and may generate some problems.
“These are all things we should be promoting. No matter what we call it,” Collins finishes.