The Central Bank of Ireland’s first ‘innovation sandbox programme’ comprises a cohort of seven innovative private-sector ventures tackling financial crime.
The sandbox – a controlled environment for firms to test innovative propositions – has been established to help the Dublin-headquartered authority have ‘deeper engagement’ with private-sector fintech initiatives.
The European Union (EU) member state’s central bank this week (9 January) announced the names of the firms involved in the inaugural programme, which is focused on helping solutions designed to combat the growing problem of financial crime. The specific stated aim is to help steer companies using innovative technology to ‘foster and develop innovative solutions that minimise fraud, enhance KYC/AML/CFT frameworks, and improve day-to-day transaction security for consumers.’ ‘KYC’ is an abbreviation for ‘know your customer’ (or client), AML/CFT stands for anti-money laundering/combatting the financing of terrorism (AML/CFT).
The companies selected – from 38 applications – include one that has developed an ‘anti-SMS fraud solution’ that installs on mobile phones to combat SMS fraud; and a company developing ‘digital identity verification solutions’ to help financial institutions verify digital identity documents and ‘wallet-based credentials’.
‘The programme encourages collaboration across the ecosystem to support the fight against financial crime and aims to facilitate the development of new ventures and new business models that solve challenges for the theme,’ the Central Bank of Ireland’s update states.
RELATED ARTICLE Irish central bank preps sandbox launch after ‘broadly positive’ feedback – a news story (7 June 2024) on the central bank announcing how the sandbox would operate
‘Diverse spectrum of innovators’
Selected participants are representative of a ‘diverse spectrum of innovators from Ireland, across Europe and the UK’ and feature start-ups, scaling firms, partnerships and established financial services firms, the Central Bank of Ireland states.
France-headquartered Expleo has developed the anti-SMS fraud solution, while Dublin-headquartered Vidos is the company developing digital ID verification solutions.
AMLYZE, which is headquartered in the Baltic state of Lithuania, is building an AML/CFT information-sharing framework that will use structured taxonomies and synthetic data to simplify detecting and preventing fraudulent activities.
A joint-project from Ireland’s Forward Emphasis and Scotland’s Pasabi will develop and test a motor insurance application fraud analytics solution, ‘leveraging artificial intelligence (AI)-driven behavioural analytics, machine learning and pattern recognition to detect fraud in the pre-sales process’.
A second joint-project is from Sedicii and PTSB (both Ireland), which are working on a ‘secure and private collaboration using zero-knowledge proofs to verify names and addresses, in real-time, as part of their customer KYC process, using [Irish electricity network] ESB Networks as the authority for address data in Ireland in full compliance with GDPR and which involves no sharing of personal data.’
The UK’s TrustElevate offers a ‘privacy-preserving solution for verifying parental responsibility and child age’; and Netherlands-headquartered Roseman Labs ‘enables secure, GDPR-compliant collaboration and analysis on sensitive data for regulated industries.’ GDPR stands for the European Union’s General Data Protection Regulation.
‘Thrilled to join…’: Ireland-based Sedicii posted on X (formerly Twitter) about its involvement in the sandbox
‘Bespoke’ advice and data provision
The sandbox programme comprises: monthly workshops; ‘ongoing bespoke engagement with dedicated sandbox relationship managers’, whose role includes liaising with central bank teams ‘to provide regulatory advice and support as required’; and access to a data platform offering ‘datasets and tools’ relevant to the theme of combatting financial crime.
The central bank states that the programme’s methodology and delivery ‘will be subject to continual assessment and impact review.’
At the Global Government Fintech Lab 2024, held in Dublin in April, the founder of independent network Fintech Ireland, Peter Oakes (speaking on the opening panel), was cautiously positive about the Central Bank of Ireland’s decision to create the sandbox.
“It depends on what the sandbox is going to do, how it’s going to be measured and how transparent it will be with its findings,” Oakes told the event audience. “I do think that, overall, if there’s a budget and resources, it should be created. But I think those who run sandboxes need to prepare [their expectations] that they may not be inundated from day one with applications.”
In a LinkedIn post this week, Oakes hailed what he referred to as “great work” by the Central Bank of Ireland in “advancing this [first] cohort from conception to execution.”
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Six-month duration
The central bank announced how the sandbox would operate in June 2024 after receiving what it described as ‘broadly positive’ feedback in a consultation. It said that it had ‘carefully considered’ suggestions and ‘made some adjustments where appropriate’. Among the changes was that the sandbox is being managed in-house instead of ‘delivered in conjunction with a third-party innovation programme’, as had been proposed.
The central bank also opted to increase the duration of sandbox participation to a minimum six months. The consultation document did not state a specific duration – merely that ‘successful applicants will be brought through a specific programme over a pre-defined period of time’.
Many respondents suggested an ‘always open’ approach. But the central bank stated that its ‘engagement with peers globally would highlight that the most efficient and effective use of resources and minimisation of costs, while still supporting innovation across the ecosystem, is to provide the innovation sandbox programme via a programmatic approach.’
An analysis published by the International Monetary Fund (IMF) in 2023 urged authorities to think carefully about whether devoting resources to new mechanisms such as sandboxes to help with private-sector engagement is worthwhile, stating that for most authorities existing structures will likely do a better job. ‘There are several ways to strengthen surveillance and respond to the challenges of fintech,’ noted the 58-page ‘Institutional Arrangements for Fintech Regulation: Supervisory Monitoring’ analysis. ‘For most authorities, existing supervisory structures will allow them to effectively monitor new fintech developments and respond to challenges. Using existing resources and infrastructure can allow authorities to monitor new fintech developments and identify risks while saving cost and time on the design and implementation of new structures.’
‘Sandboxes may not be the most effective way for many authorities to monitor fintech developments because they are resource-intensive and costly, and engagement extends to a relatively smaller number of firms over a longer period,’ the report concluded. It went on to add that ‘sandboxes are not a sensible fix to underlying problems with supervisory structures and could amplify existing problems as well as allow authorities to carry out risk-washing’.
