The Central Bank’s ‘regulatory sandbox’ plan doesn’t go far enough – this is a missed opportunity

Innovation thrives in environments where experimentation is encouraged, risks can be mitigated and regulations are constantly adapting to accommodate evolving technologies. Start-ups are at the heart of innovation – but more often than not, they face a host of regulatory obstacles which hinder growth and potential. This is where the concept of “regulatory sandboxes” can offer a realistic solution to the constant hurdles they face.

So, what is a regulatory sandbox? Pioneered by the UK Financial Conduct Authority (FCA), they provide a controlled environment for start-ups to test their products or services in a real-life setting, while under the supervision of regulatory authorities.

This enables start-ups to test their idea while also tapping into the expertise and experience of various regulatory bodies. So, like a parent giving a child the space to learn without hurting themselves or others, the FCA created a pathway for companies big and small to experiment, without the burden of all the complexity, in smaller, very controlled ways.

Financial regulations can be multifaceted, usually for good reasons, meaning they can be incredibly daunting and expensive to comply with. This usually means that only very large organisations with deep pockets have the capacity to navigate financial rules and remain compliant. The regulatory sandbox allows companies to test products in a controlled environment, for example with a small number of real consumers.

The UK’s regulatory sandboxes helped foster innovation, they reduced time-to-market for new products, and gave enhanced consumer protection. The concept has been so successful that since the launch of FCA regulatory sandboxes in 2016, over 600 applications have been received from businesses and start-ups in such sectors as crypto and DeFi, ESG, AI, and infrastructure and process innovation.

What are we doing in Ireland? Last year, the Central Bank of Ireland (CBI) announced plans to launch a sandbox mechanism in Ireland.

However, the regulatory sandbox, planned to be operational later this year, will not involve any live testing in the real-world market. While this is a great starting point, the cautious approach means many Irish start-ups may prefer to move to the UK for their more robust initiative.

That matters. The success of start-ups in Ireland is closely tied to our overall reputation as a hub for innovation and entrepreneurship. Ireland is already home to start-ups that have put the global spotlight on the country, such as cybersecurity start-up Tines or drone delivery service Manna. If we want to encourage start-ups like these, and also attract international start-ups seeking a supportive regulatory environment, we need to embrace regulatory sandboxes with no restrictions.

By proactively addressing ethical and regulatory concerns, Ireland would attract investment, talent and partnerships, further driving innovation. We can also continue to support multinationals here, while growing companies rooted in Ireland and potentially attracting the best and brightest entrepreneurs.

The current CBI guidelines just don’t go far enough. By embracing and implementing regulatory sandboxes, we can unlock their full potential and help build our innovation sector. We have a golden opportunity. Let’s not miss it.