Arizona the first state to open FinTech Sandbox

This past spring, news broke that Arizona had become the first state in the country to introduce a “regulatory sandbox” for multiple burgeoning industries. The push behind this was to encourage and support the development of emerging industries such as fintech, blockchain and cryptocurrencies, three areas that are seeing exponential growth not only in the country as a whole, but in Arizona specifically.

In recent years, Arizona has gained recognition as a tech hub for startups and a land of opportunity for established corporations and businesses looking to expand their technology. From software companies to defense tech, Arizona has opened many new doors.

For the FinTech Sandbox, which went into effect Friday, August 3rd, the law will grant regulatory relief for those in the above-mentioned industries looking to develop and promote new products. Companies will also be able to test out their products for up to two years before needing to apply for a formal license, a major red tape hurdle for most. Traditionally companies would have to operate under certain licenses to act as a financial institution.

“We want to attract more venture capital investment into the state to continue to grow Arizona’s economy. Right now, around 75 percent of all venture capital investment in the U.S. goes to California, New York and, Massachusetts,” says Katie Conner, a spokeswoman for Attorney General Mark Brnovich. “Ultimately, we anticipate these tests will capture the attention of companies around the world and draw further investment in our community.”

The goal of the recently created legislation, HB 2434, is to bolster the state’s standing in the country as a developer’s dreamland for banking, finance and technology. With the rapid change in the way financial institutions are serving customers (i.e. artificial intelligence, blockchain, algorithm-based products), regulatory systems are struggling to keep up. The idea of a sandbox isn’t new, as different parts of the world have tested it to give new products and technologies a trial run.

The United Kingdom, United Arab Emirates, Canada, and Australia are just some of the countries utilizing sandboxes like the one in Arizona. Fintech has grown exponentially in recent years, and those countries have seen the opportunity to attract investors and VC’s.

The Attorney General’s office says the Sandbox will open up to businesses looking to work around the normal license requirement. Brnovich has been promoting the Sandbox for some time now. The big push to get the project moving was due to a slow go of it by agencies involved in the fintech and blockchain industries.

“Technology is the future; Arizona has embraced this reality and is rapidly becoming a hub for innovation. The Sandbox is yet another tool for building the economy that well-positions us for the future.”

Ultimately, the Sandbox should help regulators handle the new technologies. Blockchain and cryptocurrency, while exciting, are still in their infancy and need time to grow. Additionally, promoting Arizona’s openness to these new technologies will call on new innovators and developing startups to set down roots in the desert.

“We think the FinTech Sandbox will position Arizona to receive an even greater share of that market and will put us on the map for interested venture capitalists,” adds Conner. “This type of investment grows our economy organically by creating high-quality jobs and infrastructure.”