FinTechs get ready to play in the sandbox

By Michelle Chasser and Daniel Knight

In a recent speech at the Innovate Finance Global Summit, Christopher Woolard of the UK Financial Conduct Agency (FCA) provided details about the UK regulatory sandbox due to launch 9 May 2016. The sandbox will allow two FinTech cohorts a year to test their ideas without incurring the significant regulatory set up costs usually associated with going to market.

Participants in the sandbox will be given restricted authorisations to provide financial services to allow them to market test their ideas. The FCA will also develop a streamlined application process. Full authorisation will need to be sought to operate outside the sandbox.

The FCA will also provide individual guidance on interpretation of FCA rules and how they apply to the participants. For participants that don’t fit easily within existing regulations the FCA has the power to issue ‘no enforcement action’ letters in relation to FCA disciplinary action for the duration of the test and to waive or modify FCA rules.

Prior to the test, the FCA will negotiate individual testing parameters and customer safeguards with each participant. The requirements are likely to be different for each participant. Some may be required to guarantee that consumers can be restored to their pre-test position while others may only be required to have clear disclosures in place. Each participant must also have an exit strategy for consumers, which may involve halting business or transferring consumers to third parties, if the test fails.

Applicants for the sandbox will need to meet eligibility criteria. As well as having a need to test in the sandbox, applicants must submit proposals which are:

  • a genuine innovation;
  • of direct or indirect benefit to consumers;
  • for the UK financial services market; and
  • ready to test.

The Australian government has also announced the development of  a regulatory sandbox which will be administered by the Australian Securities and Investments Commission (ASIC). Although details for the Australian sandbox are yet to be announced, it is likely to be similar to the FCA’s approach.

Mr Woolard’s speech can be found here.

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