From its first round of funding in 2016, the FCA looks to expand the ‘sandbox’ on a global level.
The UK’s Financial Conduct Authority (FCA) says that it is discussing the possibility of a global Fintech regulatory sandbox, following the success of its “safe space” for businesses to test products, services and delivery mechanisms in the real market.
The FCA’s original sandbox, launched in 2016, saw 90% of firms from its first round of applications successfully going to market; the FCA has since also had 30 applications from international firms and gone on to support 11 of them.
Speaking at the Innovate Finance conference in London this week, the FCA’s Executive Director of Strategy and Competition, Christopher Woolard said that interest from other countries had been pronounced: “The potential of such a project is huge – from solving global problems like money laundering to reducing the regulatory burden of compliance”.
The regulator last month invited stakeholders to share their views on what a global sandbox could look like. The responses – from regulators to start-ups, challengers to large firms, trade bodies to think tanks – make for “fascinating reading”, Woolard said and included a “global dictionary” which covers data needs across different countries, and a joint mission statement from participating regulators with agreed criteria.
Urging pragmatism (and warning that proposals for global standards would take “twenty years to negotiate”) he announced that this week the FCA will nonetheless start working with regulators across Europe, the US and Far East, on a global sandbox blueprint.
One key shared area of interest for global regulators, of course, is money laundering – which the UN estimates to account for up to $1.6 trillion annually.
“Controls can’t be effective if there’s fragmentation. This is an area where we all have skin in the game… That’s why, in May, we will be bringing together international partners from the US, Europe, Australia, Japan and Korea in a TechSprint which will focus specifically on developing solutions to the challenges of money laundering, financial crime and terrorist financing,” he said. The event will draw on the skills of software developers, data scientists and subject matter experts, working in cross-industry groups to develop solutions to critical problems in financial services.
The proposal comes as regulators globally grapple with the challenge of regulator decentralised cryptocurrencies – which fell some $140 billion since the beginning of March as regulators talk tough. Facebook and Google have now both banned cryptocurrency adverts and Twitter is reported to be set to follow.
A further area of global interest is the use of machine learning to support regulatory compliance, Christopher Woolard noted. A previous TechSprint on regulatory reporting last year saw the FCA turn a regulatory requirement into machine-readable language.
“From that language, machines can respond to the requirement by effectively pulling the necessary information direct from the firm. Not in months, but in seconds. In our sprint, 12 seconds to be precise.”
The Original Sandbox
The “original” FCA sandbox aimed to make testing in a “live environment” possible for companies that might have already run inhouse sandbox tests, so that they could gauge how receptive consumers are to different pricing strategies, communication channels, business models and to the new technologies themselves.
The FCA also supports technology and cyber resilience reviews of firms when setting up sandbox tests – allowing them to test their technology on a small scale in the market while ensuring controls are in place to minimise the risk of harm to consumers