In May the European Commission named Cambodia as one of 12 nations at a high risk for money laundering and terrorism financing. The EC's move is a setback for Cambodia, which aims to attract foreign investment and develop a thriving digital economy. The kingdom will likely be added to a list that includes countries such as North Korea Iran, Yemen, Syria and Afghanistan. The EC said that it sought to better align with the international money-laundering watchdog FATF, which put Cambodia on its gray list in February 2019 for having "significant deficiencies" in its anti-money laundering and counter-terrorism financing regime.

Judo Bank has become the first of Australia's neobanks to reach a AU$1 billion valuation and just the second so-called fintech "unicorn" in the country after Tencent-backed Airwallex. Investors shrugged off the coronavirus pandemic and economic doldrums - Australia is headed for its first recession since 1991- and handed Judo an additional AU$230 million in May. Melbourne-based Judo has now raised a total of AU$770 million in equity over three fundraising rounds. Among Judo's existing investors: the Abu Dhabi Capital Group, Bain Capital Credit, Ironbridge, Myer Family Investments, OPTrust, SPF Investment Management, and Tikehau Capital.

Ant Financial has invested $73.5 million in Wave Money (Digital Money Myanmar), a mobile financial services firm that aims to boost financial inclusion in one of Asia's poorest countries. Per-capita GDP is just $1326 in Myanmar, according to the World Bank, and 75% of its 54.5 million people lack a bank account. Ant's investment in Wave follows the Chinese fintech giant's announcement last November that it was planning to raise $1 billion for a fund to invest in Asean and India-based mobile internet startups. Ant is reportedly keen to back more fintechs in those markets.

On May 17, the People’s Bank of China (PBOC) Shanghai branch announced the launch of the Shanghai Fintech Innovation Regulatory Trial, which follows the trial in Beijing last December. In addition, the Shanghai Fintech Industry Alliance (SFIA) was established to encourage innovative fintech programs in the Yangtze River Delta region.

Regulatory sandboxes provide fintech firms a controlled and supervised environment to test innovative products, services, or business models. Fintech innovation is an important driver of growth in the financial industry, especially in China. However, potential risks need to be addressed, notably customer security and data protection. At the same time, regulatory uncertainty could dissuade investors from investing in a company. For their part, meanwhile, regulators need to develop a deep understanding of innovative applications so that they are able to effectively regulate new business models and technologies. Thus, regulators use a regulatory sandbox to achieve a balance between technological innovation and risk prevention, so as to implement more universal policies.

Project qualification and regulator duties

In mid-January, the PBOC announced the first batch of trial applications, including the Internet of Things, APIs, smart tokens and trusted execution environment. Six projects have been approved to join in the trial scheme in Beijing, including API open banking (CITIC aiBank), supply chain finance based on IoT (Industrial and Commercial Bank of China), automatic loans for micro-credit products (Agricultural Bank of China), mobile POS (China UnionPay, Xiaomi and JD digits), Zhiling products managing smart token (CITIC Bank, UnionPay, Duxiaoman payment and Ctrip) and instant online loan (Bank of Ningbo).

In late April, the PBOC extended the second batch of sandbox experimental cities to Shanghai, Chongqing, Shenzhen, Hangzhou and Suzhou, as well as the Xiong’an New Area, a much-anticipated new economic zone. The Shanghai trial will guide licensed financial institutions and technology companies to join in the scheme, with the aim to protect consumers’ rights and assist SMEs with maintaining their operations during the COVID-19 crisis. The Shanghai financial regulator said that it would apply “soft regulatory methods” such as information disclosure, product notice, and social supervision. It will also support the local sandbox to connect with other sandboxes around the world.

Although there are similar products widely available on the market, such as instant internet loans issued by banks or internet loan providers, putting a project into the sandbox can allow it to grow freely without falling afoul of existing regulations, supporting the creation of new business models and helping familiarize regulators with them.. However, if a project does not progress fast enough in the sandbox, it may stand little chance of succeeding in the real market.  

The Sandbox experience in the UK and ASEAN

The British government first developed the concept of the "regulatory sandbox." The UK Financial Conduct Authority (FCA) launched its innovation program in 2014 and has supported more than 700 firms to test their innovation with real customers in the live market under controlled conditions. The access to regulatory expertise through the sandbox has reduced the time-to-market for firms and potentially lowered related costs. According to the FCA, 90% of the firms in the first cohort have continued towards a wider market launch. And at least 40% of firms that completed testing in cohort 1 received investment during or following their sandbox test.

Across ASEAN, regulatory sandboxes are also playing their role in managing risk in fintech innovation. In Singapore, the Monetary Authority of Singapore (MAS) launched its fintech sandbox in 2016 to encourage more fintech experimentation and innovation. One company, Inzsure Pte Ltd, was forbidden to continue serving as an insurance broker after the sandbox test.

The Bank of Thailand launched a regulatory sandbox in early 2017 and encouraged innovative companies to develop services and products. In the Thai model, a startup’s innovations stay in the sandbox for a fixed period of 6 to 12 months. Successful businesses after this period can apply for operating licenses.

Sandboxes in Zhejiang and the Greater Bay Area

Hangzhou is to release its Fintech Sandbox rules this week. The detailed establishment plan will be set by Hangzhou Central Sub-branch of PBC, Zhejiang Bureau of CBIRC, Financial Bureau of Zhejiang Province, and Hangzhou Municipal Bureau of Finance.

Meanwhile, in order to accelerate financial and trade integration of the “Greater Bay Area”, the PBOC announced the release of the “Opinions Concerning Financial Support for the Establishment of the Guangdong-Hong Kong-Macau Greater Bay Area” on May 14. The PBOC produced the Opinions in collaboration with the China Banking and Insurance Regulatory Commission (CBIRC), the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE). The options include plans to promote a cross-border regulatory sandbox.

These trial projects form part of China’s Fintech Development Plan (2019-2021). According to internet bank XWBank (XinWang Bank), the fintech regulatory trials will test the best regulatory methods and provide corresponding space and system guarantees for fintech innovations based on the “regulatory sandbox” innovative regulation model.

As tensions between the U.S. and China flare up in the financial sector, the future of Chinese fundraising in America's capital markets looks uncertain. Hong Kong has benefited, attracting a growing number of Chinese tech IPOs and secondary share listings from juggernauts like Alibaba and JD.com. Another possible winner in the U.S.-China financial tussle could be London, which began operating the London-Shanghai Stock Connect scheme in 2019.