Financial Conduct Authority‘s Project Innovate celebrates first anniversary with plans for ‘regulatory sandbox’

Published: 10/11/2015     Last Modified: 10/11/2015

The Financial Conduct Authority (FCA) has published plans for implementing a ‘regulatory sandbox’. The sandbox will allow businesses to test out new, innovative financial products, services or business models without incurring all the normal regulatory consequences of engaging in those activities.

The FCA was asked to investigate the feasibility and practicalities of developing a regulatory sandbox for financial services by Her Majesty’s Treasury, following recommendations by the Government Office for Science.

The publication will extend the FCA’s Project Innovate, and marks its first anniversary. Project Innovate was developed by the FCA to foster competition and growth in financial services by supporting both small and large businesses that are developing new products and services that could genuinely benefit consumers. In its first year, Project Innovate has helped over 175 innovative businesses, five of which have now been authorised to undertake regulated activities.

Christopher Woolard, director of strategy and competition at the FCA, said:

“To promote competition it is vital that we support firms – both regulated and unregulated, whether large incumbent or small start-ups – that want to bring new ideas that can benefit consumers to market. In just one year, Project Innovate has helped over 175 innovative businesses and undertaken a number of steps to address some of the challenges that firms face.

“To build on this work, today we’ve set out our plans to help firms test new ideas to better understand how they may work in practice.” 

Sandbox report

The FCA believes that a sandbox could deliver a number of benefits to innovators, including reducing the time it takes for innovative ideas to come to market. The benefits to firms should lead to better outcomes for consumers, such as an increased range of products and services. The sandbox also enables the FCA to work with innovators to ensure that appropriate consumer protection safeguards are built in to their new products and services before these reach a mass market.

Under the plans published today, firms that do not yet have FCA authorisation will be able to make use of the sandbox. The FCA has suggested that these firms will be able to use a tailored authorisation process that will allow only for the testing of products and services.

For authorised firms, the FCA is proposing to use tools that give confidence that enforcement action will not be taken at a later date in relation to testing activities.

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

The FCA has suggested a number of additional 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 FCA will now start engaging with stakeholders to explore these options further.

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

Those who have views on the options and ideas for the sandbox are invited to participate in a sandbox event in December 2015. Please see innovate.fca.org.uk for more detail.

Those who wish to provide input into the development of the sandbox unit can send it to sandbox@fca.org.uk.

Notes to editors

  1. Regulatory Sandbox
  2. Christopher Woolard, director of strategy and competition at the FCA, delivered a speech on how the FCA is supporting innovation in Hong Kong on 10 November.
  3. More information on Project Innovate
  4. On 1 April 2013 the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  5. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  6. Find out more information about the FCA.

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