Regulatory sandboxes and innovation hubs for FinTech: experiences of the Baltic states

The emergence of the FinTech industry has created new dilemmas for financial regulators and supervisors who need to balance the goal of promoting innovation in finance with the traditional objectives of financial stability and market integrity. In order to address the challenges related to FinTech, regulators in many countries have utilized institutional innovations like regulatory sandboxes and innovation hubs. Although these solutions are popular and widely praised in the existing literature on FinTech, there is limited knowledge of their actual impacts. We employ the critical lenses that Law & Economics offers to gauge the impacts of regulatory sandboxes and innovation hubs for FinTech in the three Baltic states. Our comparative analysis indicates that in Lithuania and Latvia, FinTech regulatory sandboxes have not lived up to the praise they have received in the literature. In contrast, the innovation hubs for FinTechs in all three countries have offered wide-ranging benefits for the regulators and FinTech companies.