The FCA has published a report outlining how the regulatory sandbox has met its objectives over the first year of operation. The report also highlights some of the challenges faced by firms in conducting their tests within the sandbox. These include accessing banking services and smaller firms struggling to acquire customers to take part in their tests.
The sandbox opened in June 2016. Since then, the FCA has received 146 sandbox applications. Of these, 50 were accepted and 41 progressed to testing which has been run in two cohorts.
The FCA states that it is too early to draw robust conclusions on the sandbox’s overall impact on competition given its relatively small scale to date and the time the regulator expects changes to embed in the market.
In chapter 5 of the report the FCA discusses limitations regarding sandbox testing covering the topics of: (i) access to banking services; (ii) customer acquisition and governance processes; (iii) access to consumer data and integration with Application Programme Interfaces; and (iv) meeting conditions for authorisation.
In terms of meeting conditions for authorisation the FCA makes the following points:
- firms looking to test in the sandbox must meet the relevant conditions for authorisation for the activities they want to conduct. These conditions ensure that, among other things, firms have the necessary competence and financial viability to protect the integrity of their operations and their customers;
- assessing sandbox firms against these conditions is often more complex than for traditional firms as their operations may be structured differently than the models the FCA has previously seen;
- generally sandbox firms have been able to clearly demonstrate their ability to meet the conditions for authorisation. In some cases this required further discussions with the firms or requests for additional information that would not normally be required during the authorisation process. However, the FCA has found that firms with certain business models have had greater difficulty in meeting the initial regulatory requirements to become authorised; and
- the FCA has found it difficult for firms to become authorised as either an insurer or multilateral trading facility to test their propositions within the sandbox framework, particularly in the case of smaller start-ups.
View FCA outlines lessons learned in year one of its Regulatory Sandbox, 20 October 2017