The Financial Conduct Authority (“FCA”) has published a call for feedback on a possible global regulatory sandbox, seeking views on: the potential global reach of the sandbox, what a global sandbox could look like and what the regulatory challenges might be.
GLOBAL SANDBOX
The FCA, alongside other regulators in other jurisdictions, wish to create the right conditions for firms who are looking to develop and launch innovative business models that benefit consumers. Since its launch in 2016, the FCA’s regulatory sandbox (the “Sandbox”) has supported 60 firms to test their innovation with real customers in the live market under controlled conditions.
The Sandbox has four objectives:
- reducing the time and cost of getting innovative ideas to market;
- facilitating greater access to finance for innovators;
- enabling products to be tested and introduced to market by allowing firms to assess commercial viability, consumer reception to pricing strategies, consumer communication channels, business models as well as the actual technology; and
- working to ensure appropriate consumer protection safeguards are built into innovators’ products and services through measures such as extra capital requirements, systems penetration testing or secondary review of automated advice by a qualified financial advisor.
GLOBAL REACH
At present, the Sandbox only allows firms to conduct tests in the UK but many aspects of financial markets and FinTech are global. Some firms value being able to work with other regulators to conduct tests in more than one jurisdiction. The FCA believes a global Sandbox could potentially allow firms to conduct tests in different jurisdictions at the same time and allow regulators to work together to identify and solve common cross-border regulatory problems, through tests. Under this model, testing could span two or more jurisdictions.
WHAT COULD A GLOBAL SANDBOX LOOK LIKE?
Due to the diverse regulatory structures and features of existing sandboxes, a full multilateral sandbox, which allows concurrent testing and launch across multiple jurisdictions, would be an ambitious goal.
The FCA believes a global Sandbox could focus on the following activities:
- invite applicants to address pre-identified challenges: firms face certain regulatory problems that cross jurisdictional boundaries, for example, developing innovative solutions to Anti-Money Laundering (“AML”) compliance and Know Your Customer (“KYC”) on-boarding, and payments services that seek to transfer money cross-border. The global Sandbox could help regulators and firms work together to define where these common problems exist, and collaborate to find solutions. Under this approach, participating regulators could set out areas where cross-border testing would be most beneficial, and invite firms to participate in the global sandbox to propose tests to explore these. Firms would benefit from having access to support from multiple regulators in the design and supervision of their test;
- support specific firms with cross border ambitions across any sector: the global Sandbox could allow firms who have ambitions to grow at scale in different markets to bring their idea to market more quickly and easily, creating more effective competition; and
- seek to address policy and regulatory challenges: the global Sandbox could convene joint events and/or papers on emerging trends and challenges to leverage the diverse experience of participating regulators and firms.
To deliver more immediate results and move closer to a full multilateral sandbox, the FCA has suggested setting up an international college of regulators who have their own innovation or sandbox models. Therefore, firms already working with those regulators could get access to multiple regulators and the regulators could collectively share and learn from each other on new innovative business models.
NEXT STEPS
The FCA is welcoming responses to its ‘questions for consideration’ here and is also welcoming any other general input on relevant issues. The FCA expect to provide a further update in March 2018.
For more information, and any guidance or advice on the effect of a global Sandbox, Cleveland & Co External in-house counsel, your specialist outsourced legal team, are here to help.
