In May, the UK’s Financial Conduct Authority opened the world’s first ‘safe space’ for testing new technology and business models. Christopher Woolard, director of strategy and competition at the FCA, tells Joy Macknight how it works.

Chris Woolard embedded

In November 2015, the UK’s Financial Conduct Authority (FCA) announced plans to open a regulatory sandbox aimed at making it easier for new financial technology (fintech) and business models to come to market, thereby increasing competition. Applauded as a pioneering initiative, the move has inspired other regulators to follow suit.

According to the FCA's director of strategy and competition, Christopher Woolard, the authority’s Project Innovate initiative, launched at the end of 2014, paved the way for the FCA to assist more than 200 companies; of those 40 have either become authorised or are currently in the process of becoming so.

“Through Project Innovate we have created an environment in which it is much easier to deal with the regulator, navigate compliance requirements and understand what it takes to be regulated,” he says. “Importantly, we are now seeing innovations that might not have been able to come to market or might have taken much longer without this assistance.”

Maintaining standards

The regulatory sandbox is the next step in engaging with companies wanting to test out their ideas in the safest way possible, without incurring the expense of going through full authorisation. For this purpose, the authority has set up a restricted authorisation process.

Mr Woolard stresses that the FCA is not lowering its standards around consumer protection or market integrity. “We are just making it easier for companies, especially small fintech firms, to understand the regulator’s expectations and, where necessary, give them an informal steer about their business model or whatever will help them come to market,” he says.

Companies participating in the sandbox are required to define specific parameters, such as target customer segment or limited sample number. “If the trial works and the company decides to turn it into a full-blown business, then the scope of regulation can grow with that business rather than imposing every single requirement on day one,” explains Mr Woolard.

He believes that having the FCA monitoring trial results is an advantage for companies taking part because it helps them engage with potential clients. “Being able to say that they meet FCA standards is one way of at least getting to first base with consumers,” he says.

Apply within

Firms have until July 8 to submit applications to join the first sandbox cohort; entry for the second cohort begins in November. The FCA is looking for those companies with a truly innovative proposition: either an established player wanting to start a new initiative by, for example, ring-fencing it as a separate operation, or an innovative fintech company with nothing to benchmark itself against.

The FCA is deliberately running two cohorts for comparison, but also to ascertain what resources should be assigned to the initiative. When Mr Woolard started Project Innovate 18 months ago, it had two staff; today the team has grown to 13 and also draws on colleagues from the authorisation and supervision divisions.

“We try to blend different experiences,” he says. “Some are tech savvy and have spent time in the industry, but crucially we have people who understand our authorisation process and how European regulations work. We need to be able to understand the propositions coming in but also provide sound advice to firms about how to interface with the regulatory landscape.”

Mr Woolard did not specify how many companies would be accepted into each cohort, except to say: “Inevitably it will be a relatively small number because we will most likely have to develop bespoke solutions for each proposition. We want to test the demand and of course foster as many good ideas as we can.” He adds that the regulator is prepared to adopt a variable timescale for each company depending on their requirements.

World class

The regulatory sandbox concept is spreading across the globe. The FCA has signed agreements with its counterparts in Australia and Singapore, both of which have announced plans to open sandboxes in their respective countries. According to Mr Woolard, the vision is to allow firms authorised in London, for example, to grow to scale and become disruptive innovators across different jurisdictions. The FCA is also keen to encourage companies from elsewhere to add to the competitive landscape in the UK.

“What is positive about [these agreements] is that they are very practical,” says Mr Woolard. “We aren’t trying to create one global standard for regulation that takes 25 years to negotiate. We want to do practical and pragmatic things that help firms become bigger disruptive innovators more quickly.”

In addition to exploring more international links, the FCA is turning its attention to ‘regtech’, which uses technology to improve regulatory processes. It recently ran a tech sprint, bringing together large firms and fintech companies to solve specific pain points. It is also looking at how government regulators can co-operate around questions such as making 'know your customer' a more digital process, which can provide real benefits to consumers and be more cost-efficient for the banks.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter