FCA proposes establishment of “regulatory sandbox”


The Financial Conduct Authority today published a special report to Her Majesty’s Treasury on the feasibility and practicalities of developing a regulatory sandbox.

The latter is supposed to be a ‘safe space’ in which businesses can test innovative products, services, business models and delivery mechanisms without immediately confronting all the normal regulatory consequences of engaging in the activity in question.

The “regulatory sandbox”, an extension to Project Innovate, is set to support disruptive innovation. The FCA quotes estimates showing that the UK’s FinTech sector generates about £20 billion in revenue annually, with a total market of £3.6 billion in ‘disruptive’ FinTech. In order to maintain the UK’s status as Europe’s leading FinTech Hub, the FCA wants to ensure that the UK continues to be an attractive market with an appropriate regulatory framework.

The potential benefits of a regulatory sandbox include:

  • Reduced time-to-market at potentially lower cost;
  • Better access to finance;
  • More innovative products reaching the market.

To guard against the risk of consumer detriment and risks to market integrity, the regulator will agree on the appropriate safeguards with firms on a case-by-case basis.

The FCA proposes a number of solutions open to the industry acting collectively, such as establishing a virtual testing environment and setting up an authorised umbrella company that allows innovative businesses to act as its ‘appointed representatives’ for the duration of the trial.

The regulator intend to open the sandbox unit for testing proposals in spring 2016. Over the course of the next few months, the FCA will engage with interested parties to finalise the design of how the unit will operate.

To view the full Regulatory Sandbox report, click here.

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FCA proposes establishment of “regulatory sandbox”

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