Lessons Learned: UK FCA Shares Insight into Fintech Sandbox Operation After First Year

Following the first full year of operations of the Fintech Sandbox, the UK Financial Conduct Authority (FCA) has published a report outlining lessons learned. The UK has been the trailblazer in the concept of creating a regulatory sandbox to allow innovative financial firms to work closely with regulators on business models prior to being released live into the wild. The sandbox was effectively established to support the FCA’s objective of promoting effective competition in the interests of consumers but also allows the regulators to grow and learn.

Since financial services are a highly regulated industry it can be difficult for startups to enter the space. The Fintech Sandbox can help level the playing field by smoothing over regulatory hurdles in a safe environment. Innovative services may be delivered quicker to market thus benefiting consumers and businesses.

Christopher Woolard, the FCA’s competition guru, said the Sandbox was a first worldwide and it has been met with impressive demand from innovators;

“We have seen tests across the full range of sectors that we regulate and I’m pleased that the majority of firms that have tested products in the sandbox have gone on to take their innovation to market. It is important that we continue to evaluate the success of our interventions so that we can identify areas where improvements can be made to help both firms testing and ultimately the consumers they are serving.”

The FCA sandbox opened for applications 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 findings of the first year of the Fintech Sandbox are described by the report as follows:

  • The sandbox has helped reduce the time and cost of getting innovative ideas to market
  • Around 90% of firms that completed testing in the first cohort have progressed towards a wider market launch.
  • Testing in the sandbox has helped facilitate access to finance for innovators
  • Testing in the sandbox can help firms access funding by providing more certainty to prospective partners and investors. At least 40% of firms which tested in the first cohort of the sandbox received investment either during or following their sandbox tests.
  • The sandbox has enabled products to be tested and introduced to the market
  • Firms have used sandbox tests to assess commercial viability and how receptive consumers are to pricing strategies, communication channels, business models and the technologies themselves.

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.

While the FCA said it was too early to draw profound conclusions on the Fintech Sandbox, the first year of operations has been encouraging. Global regulators keen on boosting Fintech innovation will be reading this report with interest.

The FCA said it will use the insights outlined in the report to inform future sandbox developments and will continue to feed them into its broader regulatory work, including policymaking and supervisory activities.

Download the FCA Fintech Sandbox report here.


 

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