Login

Global Fintech Sandbox proposal from the FCA

Posted on February 16, 2018 by Editor

After a strong showing in its domestic market, the UK’s Financial Conduct Authority (FCA) is looking into the creation of a global regulatory sandbox. Such a move would enable fintech firms to carry out tests in different countries at the same time, while also helping watchdogs to identify and solve common cross-border problems.

Regulatory “sandboxes” are a controlled environment in which certain financial regulations are suspended or altered to allow a new concept to be tested. For example, regulations which might be inappropriate for entirely new business models that don’t involve central counterparties could be suspended to allow a distributed settlement system test to occur. Or new customer delivery mechanisms that might otherwise require extremely time consuming or expensive licensing arrangements might be tested without the normal licenses for a limited period and to a limited set of customers.

They allow companies (often startup “fintechs”) to test new products. They also allow regulators to understand these new offerings and design appropriate controls around their operation. Naturally, some sandboxed projects fail, and others fly.

Since its launch in 2016, the FCA’s domestic regulatory sandbox has been used by 60 different firms to test their innovation with real customers in a live market within controlled conditions. The initiative has proved to be a significant success, helping to cut the time and cost of getting new ideas to the market. Authorities in other countries have followed the FCA’s lead. Just this week, the South African Reserve Bank announced it is exploring the creation of a sandbox, and the Saudi Central Bank promised to provide a sandbox for banks to try out technologies from Ripple. At the same time, financial authorities in Mauritius revealed a plan for the establishment of a sovereign fund to provide seed capital for the development of fintech activities for the island nation. Each and every week we hear more news of this ilk.

Although the FCA has nine bilateral cooperation agreements with other jurisdictions which encourage dialogue between regulators, it does not offer firms the chance to participate in a joint sandbox programme.  That is why the FCA is now looking into how this can be changed, arguing that the worldwide nature of financial markets and fintech makes a more integrated system – a global sandbox – an attractive proposition.

This initiative could be of significant benefit to firms looking to develop technology in areas where cross-border testing is particularly important and further helping regulators address policy challenges. Whilst the FCA concedes that the global sandbox may be an ambitious target, it has hoped that an incremental process of collaboration between regulators with their own sandbox models may in turn foster more concerted, globally-unified efforts. This international college of regulatory sandboxes would thus enable firms to get access to multiple regulators, rather than only the regulators they currently work with.

At this early stage, the watchdog is simply asking for feedback from interested parties – firms doing business, or looking to do business, in the UK or other parts of the worls, as well as other regulators and consumers. Questions for consideration are already available on the FCA website, with a further update expected in March. There is more about the global sandbox idea here.

Other Posts


Newsletter
Newsletter

Would you like
to learn more?

Join our Newsletter mailing list to
stay plugged in to the latest
information about XBRL around the world.

By clicking submit you agree to the XBRL International privacy policy which can be found at xbrl.org/privacy