Regulatory sandbox open now!

The applications window for the second phase of the FCA’s regulatory sandbox is open on 21 November 2016. Fintech businesses whose products or services do not fall neatly within the parameters of “regulated activity” should apply if they want the chance to test out their services in a live but “safe” (from disciplinary action) environment.

The sandbox concept was introduced as part of Project Innovate which aims to foster innovation in financial products and services whilst protecting the interests of consumers. It enables the FCA to develop the existing regulatory framework alongside continual developments in technology. By carrying out testing in conjunction with the FCA, the supervisory authority is able to provide guidance on the interpretation of regulations, and also waive or modify rules where a breach might occur but to enforce it would be at odds with the purpose of the rule, or be unduly burdensome.

Last year 24 out of 69 applicants were accepted for the sandbox. Those accepted were a mixed bag of early start-ups, challengers and incumbent firms. The FCA has been working with these applicants over the last few months to agree testing methods and build in consumer safeguards for testing to commence. Some of the ideas being tested include:

• Cross-border payments using blockchain technology
• Interest free loans for guaranteed amounts for house sellers unable to sell their property within 90 days
• A micro saving app enabling a “rounding up” service every time a user spends money

The concept has proved so popular that financial regulators in Australia, Hong Kong, Malaysia, Singapore and the US have since introduced sandboxes of their own, or are in the process of doing so.

The FCA sandbox is suitable for:

• Unauthorised businesses looking to become authorised;
• Authorised businesses looking to launch previously untested products or services, and
• Technology firms that assist financial services institutions.

Applications must be submitted between 21 November 2016 and 19 January 2017 using the application form on the FCA website. Minimum requirements to be met are that your business must have contractually secured partners to assist with testing (if required), a significant UK presence, and a UK bank account.

If you would like to discuss making such an application the FinTech team at Fox Williams would be delighted to speak with you.