U.K.'s FCA wants to promote a global "regulatory sandbox"
Since it was launched in 2016, the FCA’s regulatory sandbox has supported 60 firms to test their innovation with real customers in the live market under controlled conditions. Now, it is assessing different options to scale up the model at global level to solve the challenges of operating internationally in the fintech market.
Over the course of the past two years, the UK’s Financial Conduct Authority, FCA, has drawn its own conclusions about startup needs, one of them being the need to operate at a global scale, also during the exploration stage: “Our sandbox currently only allows firms to conduct tests in the UK but many aspects of financial markets and FinTech are global,” explains the FCA in a press release. The authority notes that it has observed, that some firms value being able to work with other regulators to conduct tests in more than one jurisdiction.
These findings have led the FCA to canvass views on the merits of creating a global sandbox, allowing firms to conduct tests in different jurisdictions at the same time and allow regulators from different countries to work together. This new format would allow regulators identify and solve common cross-border regulatory problems, through tests.
To gather opinions and proposals on how to roll out a platform of these characteristics, the FCA has published an open questionnaire and is asking regulators, businesses and other interested institutions to submit their ideas about the project.
The FCA sets out the basic activities on which the global sandbox could focus to ensure the process can be carried out in an effective manner. First, applicants should be invited to address pre-identified challenges. For example, payments solutions or cross-border anti-money laundering mechanisms. “Under this approach, participating regulators could set out areas where cross-border testing would be most beneficial,” explains the authority.
The FCA also considers that a global sandbox should focus on supporting specific firms with cross border ambitions across any sector, to help them grow and scale up their models more quickly to create more effective competition.
The FCA's interest in including international projects within its scope of action is clear. Along these lines, the organizatipn has signed an agreement with the U.S. Commodity Futures Trading Commission (CFTC), in which the two parties commit to collaborate in supporting fintech firms through regulatory initiatives in both countries. On the British side, the "sandbox" and other projects, within the framework of FCA Innovate; and on the American side, the LabCFTC initiative, a hub for supporting the country's fintech companies. "International borders shouldn’t act as a barrier to innovation and competition in financial services," said Andrew Bailey, Chief Executive of the FCA.
Accomplished goals
Since it was rolled out, three cohorts of firms have already been invited to test their products by the regulatory authority. On December 2017, it announced the firms that had successfully applied to begin testing in the third cohort and launched the application process for the fourth, which should be ready to begin testing from June 2018.
The FCA has also taken the opportunity to go over some of the goals it has accomplished since the platform was launched: According to the authority, 90 % of the firms that completed testing in the sandbox's first cohort have moved towards a wider market launch. And at least 40% of firms that completed testing in cohort 1 receiving investment during or following their sandbox test.
Also, the FCA considers that it has met its objective of allowing firms to test their products in terms of commercial viability, consumer reception to pricing strategies, consumer communication channels, business models as well as the actual technology. At the same time, the FCA considers that it has succeed in creating a mechanism that ensures appropriate consumer protection in the process of creating innovative products and services.
Carlos Torres Vila, CEO of BBVA, has said he is in favor of creating similar environments in Spain, where companies can test products and financial services without the need to comply with all the applicable regulation. He has also stressed the interest in broadening the scope of these testing environments beyond the finance sector, to the fields of data protection and cybersecurity.
One technological area that could benefit from a sandbox in Spain is blockchain; this was the view expressed by some of the leading experts and promotors of the technology during a recent roundtable at the Latibex Forum, held at BME, the Spanish stock exchange.