The FCA is keen to foster innovation in the regulatory space and encourage new FinTech projects, according to Christopher Woolard, director of strategy and competition at the FCA.
In a session titled ‘The New Regulatory Sandbox’ at the Innovate Finance Global Summit 2016, Woolard gave further details on the regulator’s new scheme, which provides startups with greater freedoms to develop and test innovative FinTech propositions.
Describing it as a “bold and complex project”, Woolard said when putting the idea of the sandbox together, the main concern was creating something that would enable firms to innovate when there’s very little public appetite for failure.
He acknowledged that, currently, the FCA’s authorisation process for financial institutions is “exceptionally rigorous” and should be simplified. He spoke of adjusting the existing regime to create a tiered regulatory approach, which grows or intensifies as a firm’s concept is tested and starts to come to fruition.
Safe space
Woolard said the FCA recognises there is uncertainty for firms experimenting with new and unregulated technology, so, to help these firms, it has created a “limited safe space” in which testing can take place, while ensuring the risk isn’t transferred onto consumers.
“We will agree upfront what the boundaries are,” he added and said each firm involved in the sandbox must have a fair exit term for every consumer involved in each test.
The director explained the FCA will use a cohort approach, initially running two per year and said, particularly with the first cohort, it will look for firms who are ready or almost ready to test their ideas.
While firms will be given a certain degree of freedom to develop their ideas, they must still be prepared to work within the guidelines and oversight of the regulator.
“We need to be able to test any ideas alongside the FCA – you have to be willing to work with us,” he added.
Chris Woolard @TheFCA announcing the new regulatory sandbox to develop innovative solutions at #IFGS2016 pic.twitter.com/4Ph50Z2w4A
— Innovate Finance (@InnFin) April 11, 2016
Room to manoeuvre
He went on to say a tool the FCA has in its armoury is the ability to waive and adjust its own rules. While the FCA can’t waive EU law, it does have some room to manoeuvre and intends to use this in the sandbox.
Woolard concluded the session by highlighting that the FCA is the first regulator in the world to launch a sandbox project of this kind, and claimed this “underlines our dedication to innovation”. The FCA is not just doing this because it’s trendy, it’s a core part of delivering its regulatory objectives, he said.
In the session that followed, titled ‘The Challenge: Innovation and Integrity’, Woolard was joined on a panel by Emily Reid, of Hogan Lovells; Imran Gulamhuseinwala, of EY; and Rhydian Lewis, of RateSetter.
Reid said: “I think there’s very positive sentiment towards what the government is doing and what the FCA is doing.”
However, she went on to say the challenges that still exist in the UK can’t be underestimated.
“The clients we’re seeing – startups and scaleups – are still finding the regulatory regime pretty challenging,” she added.
Brexit
The topic of conversation then turned to the possibility of the UK leaving the EU.
Lewis said he didn’t think the FinTech industry should be overly concerned about a possible Brexit, to which Gulamhuseinwala agreed, adding it would mean a lot of work for the incumbents in the financial services space, but not emerging FinTechs.
Reid, however, said she wasn’t able to see any upsides, for FinTech companies, of leaving the EU.
Unsurprisingly, Woolard said the FCA doesn’t have a position on the Brexit debate, and people in the sphere should focus on developing a community that thrives and has strong cross-border links.
He believes, through the sandbox programme, there may be a few companies that will emerge and succeed with their own products, becoming large and powerful in the finance space, but we will also see lots of FinTech companies develop and test ideas and then exit, with existing large financial services firms making acquisitions.