FinTech start-ups to play in the FCA Sandbox

By Jonathan Lawrence

The UK Financial Conduct Authority (FCA) recently released its 2016 Business Plan. Possibly the most eye-catching initiative is the regulatory sandbox. The sandbox has been formed to provide a safe environment for businesses to test their products. For new entrants to the financial services market, the intention is that unauthorised businesses can use the sandbox to test products, services, business models and delivery without first needing to meet all of the normal regulatory requirements and incurring the costs of putting in place the complex structures and processes to successfully apply for regulatory authorisation. These firms will be granted limited authorisation for testing purposes. The FCA has suggested a number of safety measures for consumers ranging from informed consent through to the businesses in the sandbox providing a meaningful indemnity for losses. Furthermore, the FCA will apply discretion in determining both the level of limited authorisation and the safety measures on a case-by-case basis rather than forcing a one-size-fits-all model.

Firms and businesses interested in utilising the sandbox must satisfy specified criteria and apply for the first cohort between 9 May and 8 July 2016. The second cohort will have an application deadline of mid-January 2017.  The sandbox will not be available for activities which fall outside of the Financial Services and Markets Act 2000. For example, payment service providers and e-money issuers already potentially benefit from the lighter touch regimes in the Payment Services Regulations and the Electronic Money Regulations. Accessing the sandbox is not straightforward, and businesses will need to give careful consideration as to whether they might qualify. The success of the sandbox is in part dependent on the quality of applicant. If businesses do their bit and if the FCA continues the trend of assisting disruptors where it can then the sandbox could fulfil the initial optimism around the initiative.

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