FCA supporting more firms in latest regulatory sandbox scheme

The regulator confirmed that it had accepted 31 applications of the 77 which were filed by firms looking to test their financial technology (fintech) innovations in the second round of the FCA's sandbox regime. The businesses selected all had to adhere to criteria set by the FCA to be eligible to participate in the sandbox testing.

HSBC and Lloyds Banking Group were among 18 firms to participate in the first round of the sandbox initiative last year. There were 69 applications from firms to participate in the inaugural round of testing.

The FCA's sandbox scheme allows businesses to "test new ideas without incurring all of the normal regulatory consequences", the regulator has said. It has also previously said that some testing under the scheme could involve real world experimentation of innovative products, services, business models and mechanisms of delivery under a light-touch regulatory framework and tightly controlled conditions.

Confirmation of the increased interest among firms in participating in regulatory sandbox testing, and of the increase in number of selected applicants for round two of the scheme, was announced by the FCA's executive director of strategy and competition Christopher Woolard in a speech earlier this week.

"We’ve now completed the second round of applications for testing and demand for this support is on the up," Woolard said. "We received 77 applications for the second cohort of our sandbox, more than applied for cohort one. And we have accepted 31 of these applications for testing, nearly double the number of firms we accepted for our first cohort six months ago. That means more innovative firms, trialling more innovative propositions to bring to the market."

In his speech, Woolard said that the FCA's growing regulatory sandbox initiative is involving an increasing number of firms based outside of London.

"In our first sandbox cohort, around two-thirds of our firms were from London or London-based with very few from other parts of the UK," Woolard said. "This time the proportion of firms in London is down to just over half with more regional representation."

Earlier this month Woolard outlined the FCA's plans to expand the reach of 'Project Innovate', the overarching FCA policy that sits behind the sandbox initiative, within the UK. He said at the time that the FCA plans to deliver greater support to fintech businesses based "in the Edinburgh-Glasgow corridor and the Leeds-Manchester area". He reiterated those plans in his latest speech.

"We’re especially interested in areas where ‘fin’ and ‘tech’ collide, that is, areas that have both strong financial centres and a technology presence, often backed by strong relationships with local universities," Woolard said. "We’ve mapped these and we see two specific locations where we think we can add value to emerging hubs – namely in the Edinburgh-Glasgow corridor and the Leeds-Manchester area."

Woolard cited the fact that the Scottish Financial Enterprise and Scottish Enterprise are jointly working on a fintech strategy for Scotland in a project overseen by first minister Nicola Sturgeon as a further reason why the Edinburgh-Glasgow corridor offers "promising opportunities". He similarly highlighted the FiNexus Lab collaboration in Leeds and the opening of fintech facilities such as Barclays Rise and Allied London's the Vault in Manchester as reasons why those cities show particular promise for fintech innovation.

Woolard said the FCA intends to provide more localised "regulatory support" to encourage fintech innovation in cities outside of London.

"The story I’ve heard, from many such stakeholders, is to bring the regulatory support we offer on the road – make it easier for firms considering new innovations to get advice or informal steers from the regulator," Woolard said. "The typical response I’ve had from across the UK is 'we have the technology, we’ve engaged firms and VCs, we have a lower cost of doing business, we have supportive local government, we have world-class universities and research, but we don’t have the same access to regulatory support.' Whilst I’d never claim it’s the most important piece, it is an important ingredient for start-up firms and inward investors."

"So that is what we intend to deliver. We will work with the local authorities, development partners and firms in those locations, as well as the Scottish Government and the Treasury's digital envoys. Our aim, as for the wider work we do, will be to encourage the emergence of more innovative firms, whether home grown or inward investors. This is all about breaking down barriers. Where firms have to travel great distance or can only receive the support they need over the phone, it acts as a barrier to engaging. We are seeking to make it as easy as possible for firms to engage with the regulator," he said.