FCA Reveals Fourth Round Of Regulatory Sandbox
The Financial Conduct Authority (FCA) today announces the 29 firms that were successful in their applications to begin testing in the fourth cohort of the sandbox.
The regulatory sandbox allows firms to test innovative products, services or business models in a live market environment, while ensuring that appropriate protections are in place. It is part of Innovate, an initiative kicked off in 2014 to promote competition in the interest of consumers. Since its inception Innovate has had over 1200 applications and has supported more than 500 firms. The sandbox was a first for regulators worldwide, underlining the FCA’s commitment to innovation in financial services.
Christopher Woolard, executive director of Strategy and Competition at the FCA, said:
“I am pleased to say that this is the largest sandbox cohort to date with a record number of applicants meeting our eligibility criteria. Cohort 4 has seen a large increase in the number of firms testing wholesale propositions including firms that are aiming to increase the efficiency of the capital-raising process. Alongside these we can see significant use of distributed ledger technology (DLT), some experimentation with cryptoassets which will help inform our policy work and propositions aimed at helping lower income consumers.”
The FCA received 69 applications to cohort four of the regulatory sandbox, an increase on the number of applications to cohort three. 29 firms will proceed to test.
As with the previous cohorts, the FCA continues to see successful applications from a diverse range of sectors, locations and firm sizes. Areas covered include consumer credit, automated advice and travel insurance.
Eight firms (27%) are operating in the wholesale sector. This is a large increase on cohort 3 where we had three firms with wholesale propositions. Five large firm tests will be conducted in cohort 4; the largest number to date.
Over 40% of companies accepted to cohort four are using DLT. Of these, six are using DLT to automate the issuance of debt or equity. Two are using DLT to support the provision of insurance. Other technology applied includes geo-location technology, use of Application Programming Interfaces (APIs) and artificial intelligence.
We have accepted a small number of firms that will be testing propositions relating to cryptoassets. We are keen to explore whether, in a controlled environment, consumer benefits can be delivered while effectively managing the associated risks.
The current cohort consists of the firms listed below. One firm has asked not to be named at this point in time.
Tests will be conducted on a short-term and small-scale basis and the FCA has worked with the sandbox firms to agree testing parameters and build in robust consumer safeguards.
Application window for sandbox cohort 5
The application window for cohort 5 of the regulatory sandbox will open later this year.
Crypto-focused firms are expected to use their high valuations to buy TradFi firms.
The shared private ledger from Baton Systems enhances settlement speed and efficiency.
Customers can have accelerated treatment of financial transactions, exchange and storage of data.
Project Jura explored cross-border settlement of tokenised assets on a DLT platform.
Committee is holding a hearing on Understanding the Challenges and Benefits of Financial Innovation in the US.