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UK FCA regulatory sandbox

FCA regulatory sandbox is a mechanism that allows firms, that meet the requirements of FCA, to test their ideas in a limited way to see how their ideas work in real market. It was created to speedily and efficiently test new innovations in real market while ensuring appropriate safeguards are in place.

The test takes place twice a year. Although it is not explicitly stated, the application closes in January and in June. There have been 4 cohorts.

Criteria

1: Is the business looking to deliver innovation that is either regulated business or supports regulated business in the UK financial industry?

2: Is the innovation new or something significantly different?

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

4: Do you have a genuine need to test the idea in a sandbox?

5: Are you ready to test the idea in the real market?

6: Operation in the UK (UK bank account).

Positive impact on businesses

1: It gives investors reassurance as firms that participate in sandbox must go through FCA’s oversight and increased regulatory likelihood.

2: 40% of the firms tested received investment during or after the sandbox period.

3: Firms use sandbox to test consumer update and viability.

4: FCA can help firms to adhere to the regulations.

Facts

1: Around 50% are in the retail banking business.

2: Around 80% are start ups, but some large firms also participated in the sandbox.

3: DLT, or Distributed Ledger Technology was most commonly used.

4: Some firms tested money transfer via digital currency. FCA required full refunds in the case of it being lost.

5: One firm tested a new way to convey information in IPO.

References

Lessons learned report

https://www.fca.org.uk/firms/regulatory-sandbox