Regulatory sandbox

The regulatory sandbox allows businesses to test innovative products, services, business models and delivery mechanisms in a live environment.

Christopher Woolard, our Executive Director of Strategy and Competition, explained the sandbox in a speech on 11 April 2016.

The application period for the second cohort of the regulatory sandbox is now closed. We will provide all applicants with the outcome of their application by mid-March.

On this page:

Regulatory sandbox – cohort one

The first cohort of the regulatory sandbox closed to applications on 8 July 2016. We received a total of 69 applications from a diverse range of sectors, geographies and sizes. 24 applications were deemed to meet the sandbox eligibility criteria and were accepted to develop towards testing, including early stage start-ups, challengers and incumbent firms.

The current cohort consists of the firms listed below that we expect to begin testing shortly. Tests will be conducted on a short-term and small-scale basis. We have worked with the sandbox firms to agree testing parameters, building in consumer safeguards. In addition to the firms below, six firms were not ready to begin testing and will be part of cohort two.

Firm

Description

Billon

An e-money platform based on distributed ledger technology that facilitates the secure transfer and holding of funds using a phone based app.

BitX

A cross-border money transfer service powered by digital currencies / blockchain technology.

Blink Innovation Limited

An insurance product with an automated claims process, which allows travellers to instantly book a new ticket on their mobile device in the event of a flight cancellation.

Bud

An online platform and app which allows users to manage their financial products, with personalised insights, on a single dashboard. Bud's marketplace introduces relevant services which users can interact with through API integrations.

Citizens Advice

A semi-automated advice tool which allows debt advisers and clients to compare the key features of available debt solutions.

DISC Holdings Limited A technology provider that has partnered with the Department for Work and Pensions (DWP) to determine the feasibility of making emergency payments using means other than cash or the Faster Payments Scheme. The payments platform will use blockchain to allow the DWP to credit value to a mobile device to transfer the value directly to a third party.

Epiphyte

A payments service provider that aims to provide cross-border payments using blockchain technology.

HSBC

An app developed in partnership with Pariti Technologies, a FinTech start-up, to help customers better manage their finances.

Issufy

A web-based software platform that streamlines the overall Initial Public Offering (IPO) distribution process for investors, issuing companies and their advisors.

Lloyds Banking Group

 An approach that aims to improve the experience for branch customers which is aligned with the online and over the phone experience.

Nextday Property Limited

An internet-based property company that will provide an interest free loan for a guaranteed amount to customers if they are unable to sell their property within 90 days.

Nivaura

 A platform that uses automation and blockchain for issuance and lifecycle management of private placement securities.

Otonomos

A platform that represents private companies’ shares electronically on the blockchain, enabling them to manage shareholdings, conduct bookbuilding online and facilitate transfers.

Oval

An app which helps users to build up savings by putting aside small amounts of money. These savings can then be used to pay off existing loans early. Oval will be working with Oakam, a consumer credit firm, and a number of their customers during the test period.

SETL

A smart-card enabled retail payment system based on their OpenCSD distributed ledger.

Tradle

An app and web-based service that creates personal or commercial identity and verifiable documents on a distributed ledger. In partnership with Aviva they will provide a system for automated customer authentication.

Tramonex

An e-money platform based on distributed ledger technology that facilitates the use of “smart contracts” to transfer donations to a charity.

Swave

A micro savings app that provides an across-account view; enables a round-up service every time a user spends money and calculates an affordable savings amount based on the user’s spending behaviour.

 

Regulatory sandbox - cohort two 

The application period for cohort 2 is now closed.

We will contact all applicants by mid-March to tell them whether they have been accepted to work towards developing their test proposal in the sandbox programme. If you are accepted, we will start working with you straight away to agree the details of the test and then issue the sandbox tool. This will require significant input and cooperation from each firm to enable you to meet our ambitious timelines to begin testing.

We anticipate that the test-design period, from acceptance to when you start testing, will take approximately 10 weeks. We would expect that you will have agreed your testing plan and have any regulatory tool issued by the middle of May. You will then be able to test for a period of up to 6 months.

Who the sandbox is for

Unauthorised businesses

The sandbox may be useful for firms who are not currently authorised that need to become authorised before being able to test their innovation in a live environment.

To conduct a regulated activity in the UK, the firm must be authorised or registered by the FCA, unless certain exemptions apply. Successful firms will need to apply for the relevant authorisation or registration in order to be able to test.

Restricted authorisation

We have set up a tailored authorisation process to work closely with firms accepted into the sandbox to enable them to meet these requirements. Any authorisation or registration will be restricted to allow firms to test only their ideas as agreed with us.

This should make it easier for firms to meet our requirements and reduce the cost and time to get the test up and running. If you do require a restricted authorisation tool an application fee will apply.

Firms must meet the our Threshold Conditions, in order to be authorised, and complete the relevant application forms. You can find more information and guidance on the Threshold Conditions in our COND Handbook.

Firms looking to be registered or authorised as a Payment Institution or an Electronic Money Institution are not assessed against the our Threshold Conditions, but they do face other similar requirements. For further details see:

In particular, firms applying to be either Payment Institutions or Electronic Money Institutions should pay particular attention to the safeguarding requirements.

This restricted authorisation option is not available to firms looking for a banking license. Firms looking to become a bank should contact the FCA and Prudential Regulation Authority's joint New Bank Start-up Unit.

Authorised businesses

The sandbox may be useful for authorised firms looking for clarity around applicable rules before testing an idea that does not easily fit into the existing regulatory framework.

We can help in the following ways:

Individual guidance

Setting out how we interpret relevant rules in the context of the test. This creates a safe space because, if you act in accordance with this guidance, we will proceed on the basis that you have complied with the aspects of our rules that the guidance relates to.

Waivers or modifications to our rules

If your test might breach one of our rules we may be able to waive or modify it where it is unduly burdensome or not achieving its purpose, and waiver or modification would not adversely affect the advancement of any of our objectives. We are not able to waive national or international law.

No enforcement action letters

This letter would give firms some comfort that as long as they dealt with us openly, kept to the agreed testing parameters and treated customers fairly, we accept that unexpected issues may arise and we would not expect to take disciplinary action.

We would only use this tool for cases where we are not able to issue individual guidance or waivers but we believe it is justified in light of the particular circumstances and characteristics of different sandbox tests. The letter would only apply for the duration of the sandbox test, only to our disciplinary action and will not seek to limit any liabilities to consumers.

We have not used this tool before, so we do not have examples of particular circumstances where these letters may be appropriate.

Technology businesses supporting financial services

Technology businesses that want to provide services to FCA regulated firms (eg through outsourcing agreements) can also apply for the sandbox and the above tools if they need clarity around applicable rules before testing.

Apply for sandbox

The regulatory sandbox is currently closed for applications. If you would like to register your interest for the next cohort please email sandbox@fca.org.uk.

You can download a sandbox application form, which you would be required to complete should you wish to apply.

In the application form you have to explain your proposition and how it meets our eligibility criteria:

Criteria Key questions Positive indicators Negative indicators
Is the firm in scope? Is the firm looking to deliver innovation which is either regulated business or supports regulated business in the UK financial services market?

Innovation appears to be intended for the UK market

The firm's relevant activity is regulated by the FCA or is intended for firms regulated by the FCA

Innovation does not appear to be intended for use in the UK

The firm's relevant activity is not within the scope of the FCA's regulatory regime or intended for FCA regulated firms

Is it genuine innovation? Is the innovation ground-breaking or constitute a significantly different offering in the marketplace?

Desk research produces few or no comparable offerings already established on the market

Internal experts believe that it constitutes a genuinely innovative technology / approach / product or service

Step-change in scale

There are numerous examples of similar offerings already established on the market

Internal expertise believes it is not particularly innovative

It looks like artificial product differentiation

Is there a consumer benefit? Does the innovation offer a good prospect of identifiable benefit to consumers (either directly or via heightened competition)?

The innovation is likely to lead to a better deal for consumer directly or indirectly, eg through higher quality services or lower prices due to enhanced efficiency

The business has identified any possible consumer risks and proposed mitigation

The innovation will promote effective competition

Likely detrimental impact on consumers, markets or the financial system

It looks designed to circumvent regulatory or fiscal obligations

Is there a need for a sandbox? Does the business have a genuine need to test the innovation on real customers and in the FCA sandbox?

The innovation does not easily fit the existing regulatory framework, thus making it difficult or costly to get the innovation to market

There is a clear need for a sandbox tool in order to test this product in a live environment

The business has no alternative means of engaging with the FCA or achieving the testing objective

The full authorisation process would be too costly/burdensome for the purposes of a short test of the viability of a particular innovation

Live testing is not necessary to answer the question that the firm is seeking to answer (to achieve the testing objective)

The firm is able to undertake the test easily without the support of the FCA

A dedicated supervisor or the Innovation Hub could answer the query

Is the firms ready for testing? Is the business ready to test their innovation in a live environment?

Testing plans are well developed with clear objectives, parameters and success criteria

Some testing has been conducted to date

The firm has the tools and resources required to enable testing in the sandbox

The firm has sufficient safeguards in place to protect consumers and is able to provide appropriate redress if required

Unclear objectives for testing and/or plans for testing are underdeveloped

Little to no testing has been conducted on the innovation to date

The firm does not have the required resources available to conduct the sandbox test

The proposed customer safeguards are inadequate and/or appropriate redress cannot be provided by the firm

Your application must show that:

  • the firm is in scope
  • the idea is a genuine innovation
  • there is a consumer benefit
  • there is a need for sandbox, including which tool and why
  • the firm is ready for testing

Ready for testing

In light of our experience with previous sandbox cohorts, the requirement for a firm to be ready for testing is a particularly important part of your application. If we do not feel that your firm is sufficiently ready to test and has considered the points outlined in the matrix above, then your application is unlikely to be successful.

For this criterion we will be specifically interested in:

  • the stage of development that your idea is in and whether it can be tested in a live environment (including if you have done any functional testing)
  • your specific testing objectives and testing plan
  • the major dependencies that are required to be fulfilled for you to be able to begin testing and how you intend to fulfil these (eg securing contractual agreement with a partner, securing a UK bank account, finalising development of your product)

We will work with each firm to agree the exact testing parameters and customer safeguards on a case-by-case basis depending on the type of customers engaged in the test, and the size, scale and risk of the trial. To help you start thinking about your test, we have developed some default standards that will be our starting-point.

Monitoring sandbox tests

We will agree with you on the reporting requirements that are appropriate for your test and will require each firm to regularly report to us throughout the testing duration. Our starting position is that firms will generally have to report each week on agreed testing milestones, key findings and risk management during testing.

If you fail to report to the Innovation Hub or do not comply with Principle 11 of the FCA Handbook we reserve the right to end the test. Payment Institutions or Electronic Money Institutions should have regard Principle 32 of the Payment Services Regulations and Principle 37 of the Electronic Money Regulations respectively.

After the test is completed, you will have four weeks to produce and submit a final report. We will give written feedback on the report but we will not certify business models or sign off products or services.

We will also look to publish findings from sandbox testing to educate the industry on any lessons learnt. However, we will review what we can publish on a case-by-case basis to ensure that any confidential information is protected.

Following completion of your test, we will work with you to determine the most appropriate next steps. For example, if you are issued the restricted authorisation tool for the test this could include your firm submitting an application to vary its permissions to remove any requirements/limitations.

Contact us

If you have any questions about the sandbox, please email sandbox@fca.org.uk or call 020 7066 4488 and someone will be able to help you.

Points applicants should consider

Firms applying to the sandbox should bear in mind the following:

Requirement to have a significant UK nexus

If your proposition will require you to be authorised or registered by us, it is likely we will require you to have a significant UK nexus.

Securing partners

A number of the firms that applied required a partner to be able to test their proposition (eg a firm for which you can be an outsourced technology provider). Securing contractual agreements with partners is key to progressing towards testing.

We are not able to provide a partner if you need one.

Bank accounts

In many instances, an integral component for firms to be able to carry out testing is being able to secure a UK bank account. You should consider what you will require in this area in your application.

Authorisation application forms

If the tool you require is a restricted authorisation, then you will need to complete and submit a number of forms as part of your application for authorisation.

As part of this you should consider which regulated activities might be required for you to test your proposition in the sandbox. You may wish to take a look at PERG 2.7 in our Handbook for a broad outline of regulated activities.

We will work with you as you complete these forms, however we would recommend that you take a look at our authorisation pages to familiarise yourself with the process and some of the documentation that will be required.