FCA Sandbox: Innovation in spades

Written by: Todd Latham
Published on: May 20, 2016

This week saw the launch of the FCA’s long-awaited regulatory sandbox.

For regulators, navigating the battle between protecting customers and fostering innovation that boosts industry best practice is a constant challenge. This week saw the launch of the FCA’s long-awaitedregulatory sandbox, which is an initiative intended to do just that. Designed to run as a live testing environment for would-be FinTech market entrants, the aim is to enable newcomers to assess the validity of their business model, before going through the strain of regulatory compliance.

As with all government initiatives, the sandbox has been met with mixed reviews since it was first announced in 2015. On one side of the fence, critics argue that this is a risky approach to compliance, meanwhile others claim that the initial small cohort of FinTech players invited into the scheme is too limited to make a real impact.

My fear is that this scheme is in danger of getting squashed by critics before it has had a chance to reach its full potential. This is the first initiative of its kind amongst global regulators, so it is expected that the sandbox will go through a number of iterations before reaching a system that produces real benefits to the industry. If the FCA is given enough scope to test out this solution, it has the potential to influence regulation on a global scale. Just last week, Australia’s Asic outlined plans to create its own version of the sandbox for unlicensed firms to run early stage tests and trials of their services.

In the meantime, those of us in the industry should feel proud that the FinTech movement has forced regulators, government bodies and corporate giants to sit up and pay attention. The swell of growth and momentum has been so great, that frankly we have left them no choice. We’ve proven our value within the industry and the traditional infrastructures that previously proved to be barriers are playing catch-up to help establish a solution that supports the future of financial services.

We have seen further movement in the regulatory space recently through the creation of the Transatlantic Policy Working Group – the result of a tie up between the UK’s Innovate Finance and US FinTech Firms. The objective is to ‘advocate on behalf of policies that foster innovation via information sharing and best practices’. The more FinTech is included in regulatory considerations, the closer we come to moving beyond our roots as tech alternatives, to being accepted as a mainstream part of the financial services industry.

Setting a firm regulatory framework that reduces the risk of another 2008-style crisis, while welcoming the transparency that comes with increasing competition is no easy challenge. We are fortunate enough to have one of the most inclusive and responsive regulatory bodies across the globe - if the scheme is given the opportunity to reach its full potential, it could be a truly flagship example to other nations.

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