Last year, we reported on the FCA’s launch of a 'regulatory sandbox', designed to give technology businesses increased freedom from regulatory burden, with support from the FCA, to develop their new solutions to financial services. As part of the same initiative, the FCA invited Innovate Finance to chair a consultation on an equivalent ‘industry-led sandbox’. A report on their consultation on this industry sandbox has been published.

What is an 'industry sandbox'?

For the purposes of the consultation, an 'industry sandbox' was defined as 'a shared off-market development environment where developers of FinTech solutions can access data, technologies, and services from different providers in order to validate innovative ideas or address common industry challenges'. In other words, this sandbox is set up and run by the industry to enable technology business to test their solutions (either virtually or live with limited participants) before they reach the market. It allows businesses and regulators to collaborate on developing the UK fintech industry.

The consultation was intended to identify whether there was demand for an industry sandbox and how such a sandbox might look. The report concludes that an industry sandbox would benefit the development of fintech products by providing a 'Fintech ecosystem' with access to resources (including APIs or data) as well as by promoting collaboration within the industry to address shared technological or regulatory challenges. An industry sandbox would also help regulators increase their understanding of the industry by observing participants in the sandbox and designing their regulations accordingly.

The report does not itself seek to dictate how an industry sandbox would look like. This is left to the organisations which volunteer to take the industry sandbox forward. Instead, the report suggests high level principles (of openness, connectivity and accessibility) as well as different ‘components’ which such organisations might wish to apply to their sandbox. The options range from being 'as simple as a catalogue of existing open datasets or APIs' to 'as complex as a fully fledged digital platform for managing access to market and institutional data and conducting collaborative research and development.'

What's next?

The report is the next step in the FCA’s initiative to better engage with UK fintech and heralds the possible introduction of one or more world-first industry sandboxes for fintech. The next step will be the implementation of the ideas contained within this report with participants in the industry coming together and building a sandbox. This is an ambitious proposal and a testament to the UK's growing reputation as a fintech hub. It is an opportunity for businesses to work together and, with the regulators, drive the development of UK fintech forward.