Say no to HB 564! What are regulatory sandboxes and why are they potentially bad for consumers?

Originally published by The Sierra Club Delta Chapter (Louisiana)

The Sierra Club Delta Chapter and The Alliance are opposed to HB 564, which would create the financial technology regulatory sandbox program. ​

We agree with Sen. Jay Morris' statement last year when Sen. Mark Wright proposed a similar bill: "I have a problem just saying, 'If you come up with a product, you can ask the regulators to waive all the laws that we put in place, presumably for a good reason."

The idea behind regulatory sandboxes sounds tempting: temporarily relieving businesses of various regulatory burdens and associated costs while they deliver new products, services, and business models to market.

​​The concept is that with less regulation, barriers to new developments are reduced and new ideas can be tried and tested at lower risk, allowing businesses to invest less and gain more. ​Conceptually, the upstart firms will graduate from the sandbox and become full-fledged competitors in the business world, but so far in states that have already accepted the sandbox idea, the trend has been for established companies to acquire firms that have benefitted from the regulatory sandbox, essentially acquiring research and development conducted at public expense. ​​​​
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​Additionally, a disturbing situation is that the participants avoid typical regulations for two years, while causing the newly formed Financial Technology Sandbox Council, a group of nine members who serve without compensation, to be responsible for the management of these free-ranging companies.

The sandbox program would be managed by the Office of Financial Institutions and overseen by the newly formed Financial Technology Sandbox Council. ​The bill states that this supervisory committee will include "A member of the La. Blockchain Association of a member of the La. Blockchain community;" and members from the secretary of state's office; the secretary of the Dept. of Economic Development's offie; the attorney general's office; the governor's office; two members from the financial services industry; a member of the House of Representatives; and a member of the Senate. 

Hilary Allen, Professor of Law at American University Washington College of Law, and an expert on sandbox processes said: "A sandbox can only be properly administered with significant resources." We are not sure that this non-compensated council meeting four times a year will adequately supervise the complicated list of dos and don'ts that make up the management of this bill, if it is accepted by this Legislature. If any of you have read the bill, memorized the details, and understood it perfectly, we hope that you would volunteer for this council!

Furthermore, with the output of significant resources in mind, will there be a fiscal note to accompany this bill? Or is this just another aspect of Louisiana giving money to help "poor corporations" profit at the citizens' expense?

We feel that Representative Amedée's HB 564 is a vast improvement over the comparable offered last year, but even with the concern shown for protecting consumers from potential harm, and, as HB 564 notes in Section G:1 - "Whether the risk of harm to consumers is outweighed by the potential benefits to consumers from the applicant's participation in the regulatory sandbox." It seems that this is an unnecessarily flexible option that might allow participants to act on their own principles and discretion with very little reporting to, or control being applied by the state.

Please do not support HB 564 or other sandbox legislation in Louisiana!

Representative Amedée's HB 564