The FCA has published a report to HM Treasury that sets out plans to expand Project Innovate by implementing a regulatory sandbox. The report will be of particular interest to businesses looking to develop innovative ways to provide financial services. This includes, but is not limited to, innovator firms (both authorised firms and new entrants), accelerators, software firms, and technology companies.

A regulatory sandbox is intended to be a ‘safe space’ in which businesses can test innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory consequences of engaging in the activity in question. The report sets out the FCA’s recommendations for implementing the regulatory sandbox:

  • the FCA will expand Project Innovate to include a sandbox unit. This team will be responsible for considering sandbox applications and monitoring the testing process;
  • there will be eligibility criteria for access to the sandbox. The sandbox unit will use consistent criteria to decide which sandbox proposals should be accepted for testing in this framework;
  • the FCA sandbox unit will offer a range of options. Firms face different regulatory challenges depending on a range of factors, including regulatory status and type of activity;
  • the regulatory sandbox should be flexible. Safeguards for consumers and the financial system while testing will be agreed between the businesses and the FCA on a case-by-case basis;
  • the FCA will work with industry to support the development of an industry led virtual sandbox. A virtual sandbox will be an environment that will allow firms to test their products and services in a virtual space without entering the real market (for example, by testing with publicly available data sets, or with data provided by other firms through the virtual sandbox);
  • private-sector stakeholders acting together should consider setting up a not-for-profit sandbox umbrella company. This company could seek authorisation from the FCA and then allow innovative businesses to act as ‘appointed representatives’ for the duration of the trial in question. The FCA would help with setting up the umbrella and provide some ongoing support and advice.

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 it will engage with interested parties to finalise the design of how the unit will operate. As part of the engagement process the FCA is arranging an event in December 2015.

View FCA’s Project Innovate celebrates first anniversary with plans for ‘regulatory sandbox’, 10 November 2015

View Regulatory sandbox, 10 November 2015