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Utah’s regulatory sandbox program allows participants to temporarily test new financial services or products on a limited basis without otherwise being licensed or authorized to act under Utah law.

SALT LAKE CITY — The Beehive State is launching an effort to spark innovation in the financial technology space.

The Utah Department of Commerce Tuesday announced the start of the nation’s second regulatory sandbox based on legislation passed by Utah lawmakers. HB378 permits financial technology companies to apply for a special exemption when setting up a business. According to a news release, Utah’s program allows participants to temporarily test new financial services or products on a limited basis without otherwise being licensed or authorized to act under Utah law.

The state Department of Commerce will oversee all applications and will provide administrative oversight of the new program, the released stated.

“I’m excited about Utah’s regulatory sandbox and the chance it will give fintech companies and entrepreneurs in Utah the chance to take innovative products and ideas to market without having to jump through the traditional regulatory hoops and licensing requirements which can be burdensome and costly," said state Rep. Marc Roberts, R-Salem. "This is good for Utah and the future of fintech innovation,”

In July 2018, Arizona became the first state to implement a fintech regulatory sandbox. Since then, the Arizona regulatory sandbox attracted a number of companies interested in fintech innovations, the release stated. Utah and Arizona join countries including Australia, Singapore, the United Arab Emirates and the United Kingdom that have instituted similar programs.

Roberts said local companies that may benefit from the new program could include financial products or services such as credit extending services, money transmission, peer-to-peer lending, and certain blockchain or cryptocurrency products. While the companies will be allowed to have their technology in the market, there will still be oversight.

"This (program) says we're going to waive the requirement to get the license right now, but we're still going to vet you and monitor you," he explained. "But go ahead and try your product out on a limited basis and see if it works."

He said if the company is able to prove its product or service is viable during a prescribed trial period, then it can proceed through the rest of the regulatory process. This program would relieve some of the cost burdens on new innovation, he added.

Roberts said the program provides companies the chance to get their technology to market sooner, thereby allowing 'early adopters' to experience the product or service in a real-life way sooner than later — like beta testing. The program also forces new innovators to disclose that the technology is in the sandbox process, giving consumers a full understanding of what they might be getting into.

"It doesn't have to be a new startup with a new idea, it could be an existing entity or financial institution that has a new idea," he said. "It's a good opportunity for software tech companies, existing tech companies or entrepreneurs to improve and innovate in and around fintech."

Randy Boyle, associate professor of information systems in the John Goddard School of Business and Economics at Weber State University, said the sandbox model offers promise for new technologies entering the market.

"It provides a lot of benefits to consumers, much like an experimental drug," he said. "If an experimental drug works, consumers win in a big, big way."

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He also acknowledged the potential downside, in which the new product doesn't work quite as well as intended. But the difference with technology is that even in a less than optimal scenario, the period in the sandbox is a short period of time before full regulations eventually take over. He also noted that having a regulatory sandbox is a good way to attract new fintech to the state.

"If we have the sandbox in place, it will draw innovation to us in a very rapid manner," Boyle said. "It's just a really great option for Utah because it will hopefully spur a lot of innovation."

"It's to be able to do innovative things without having widespread damage," he said.