Financial Conduct Authority outlines lessons learned in year one of its Regulatory Sandbox

The Financial Conduct Authority (FCA) has today published a report outlining how the regulatory sandbox has met its objectives over the first year of operation.

The sandbox was established to support the FCA’s objective of promoting effective competition in the interests of consumers.  It enables firms to test innovative products, services or business models in a live user environment, while ensuring that appropriate protections are in place.  

It opened for applications in June 2016.  Since then, the FCA has received 146 sandbox applications. Of these, 50 were accepted and 41 progressed to testing which has been run in two cohorts.

The report sets out the sandbox’s overall impact on the market including the adoption of new technologies, increasing access and improving experiences for vulnerable consumers as well as lessons learnt from individual tests that have been, or are being, conducted as part of the sandbox.

Read the Regulatory sandbox lessons learned report. Findings set out in the report show that the benefits include reducing the time and cost for firms of getting innovative ideas to market. 

The key benefits of the sandbox are:

The sandbox has helped reduce the time and cost of getting innovative ideas to market

Around 90% of firms that completed testing in the first cohort have progressed towards a wider market launch. 

Testing in the sandbox has helped facilitate access to finance for innovators

Testing in the sandbox can help firms access funding by providing more certainty to prospective partners and investors. At least 40% of firms which tested in the first cohort of the sandbox received investment either during or following their sandbox tests.

The sandbox has enabled products to be tested and introduced to the market

Firms have used sandbox tests to assess commercial viability and how receptive consumers are to pricing strategies, communication channels, business models and the technologies themselves. 

The report also highlights some of the challenges faced by firms in conducting their tests within the sandbox. These include accessing banking services and smaller firms struggling to acquire customers to take part in their tests.

Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said: “The FCA’s Regulatory Sandbox has been a first for regulators worldwide and we are pleased it has met a genuine demand from innovators. 

“We have seen tests across the full range of sectors that we regulate and I’m pleased that the majority of firms that have tested products in the sandbox have gone on to take their innovation to market.

“It is important that we continue to evaluate the success of our interventions so that we can identify areas where improvements can be made to help both firms testing and ultimately the consumers they are serving.”

It is too early to draw conclusions on the overall impact of the sandbox however the first year of operation provides an early indication that the sandbox has been successful in meeting its overall objective and is providing the market with the benefits the FCA set out for it.  

The FCA will use the insights outlined in the report to inform future sandbox developments and will continue to feed them into its broader regulatory work, including policymaking and supervisory activities.

Notes

  1. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
  2. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  3. Find out more information about the FCA.