The FCA announced that they will accelerate their efforts on the Digital Sandbox and conduct a pilot on #COVID19 related challenges faced by customers and firms. The digital sandbox capability will allow regulated and unregulated firms to develop proof of concepts in a digital environment, encouraging collaboration between the financial services sector.

“This is very positive for the industry and will help break down the barriers to partnerships between the fintechs and banks, ultimately serving customers with better quality financial products and services”. Said Karan Jain, Chair of Founders Anonymous.

The FCA is moving swiftly on their digital sandbox. On 21st April, Interim Chief Executive, Christopher Woolard discussed the digital sandbox as part of Innovate Finance’s Global Summit. Lawrence Wintermeyer, Co-Chair of Global Digital Finance, Co-founder of Elipses , commented that “regulators have now become very interested in digital (industry) sandboxes as a means of scaling beyond regulatory sandboxes and offering new tools and synthetic data to allow the entire financial services sector to share, innovate, test and grow.”  

Prior to the pandemic, FCA had been increasingly vocal about their intent to commission a Digital Sandbox to support their existing Regulatory Sandbox, In November 2019, Nick Cook, Director Innovate at the FCA said “Around 700 firms have used the Sandbox services and, of the 47 firms that have completed sandbox testing, around 80% are operating in the market with a further 60 in the pipeline” 

The Digital Sandbox will support the FCA’s annual TechSprint program, a platform to solve wicked problems using inter-industry collaboration. A digital testing environment like the sandbox will enable more permanent problem solving over a much longer period of time, enabling participants to solve more complex problems over a longer period of time. The pilot of comes at a time when many firms and consumers are struggling with COVID 19 related challenges  “The Digital Sandbox will assist the Fintech task-forces that have been set up to test the products under regulatory guidance, the sandbox pilot will accelerate those efforts and keep UK Fintech sector at the top of its innovation game.” said Karan.

The sandbox enables the regulator to encourage market-led innovation on important regulatory priorities. The core elements of the sandbox will include access to data, regulatory calls-to-action and access to regulatory support, as well as the ability for Fintech and Regtech firms to list their APIs in a marketplace to encourage exchanges of information and prototyping.

“The ability for fintechs and Regtechs to showcase their product and prove their technology in a digital environment will significantly reduce the barrier to innovation for fintechs. By supporting fast failing prototypes, we not only create an ecosystem that is cohesive to product innovation but also  for fintech founders who can progressively iterate from the learnings.” Said Karan

The regulator acknowledges that data and financial technology start-ups have become increasingly important  in the ways firms think about product development for their customers. Knowing that access to high-quality standardised data has been a long-standing challenge for the sector, the FCA envisages providing data within the environment. This enables firms to work together on new projects using innovative technologies, addressing industry challenges.

“As industry and regulatory sandboxes evolve, I anticipate we are heading towards a world of greater integration and convergence between models. A focus on greater scaling of thematic applications that benefit consumers and the whole of the industry, sub-sector by sub-sector, will better enable solutions to today’s complex industry problems. Greater integration and global solution scaling of our “sandbox thinking” would benefit the whole of society and not just the financial services sector if regulators and industry come together to collaborate on complex problems such as digital identity, asset custody, leverage, derivatives, and settlement finality.” suggests Lawrence

As we see the sector possibly shrinking post-pandemic, we will see an increase in digital partnerships. With businesses focused on the profit-making core activities, they will need to turn to nimble start-ups to test new services for their customers. “An industry capability such as a digital sandbox accelerates new ways for organisations to prototype with ease and build based on their customer feedback.” said Karan

An observation deck within the sandbox where regulators and stakeholders can watch testing and use it to inform their policy making will be an important use case for them. This will promote more innovative ideas to be shared at scale, beyond what has been traditionally possible.

Fast forward – This could also help the regulators better understand the impact of the planned policy, intervene if required and also allow the private sector to test the products they are delivering. The FCA said it would keep the industry updated with information on specific proposals for launching a coronavirus pilot of the digital sandbox. The regulator is seeking applications and intends to open a pilot program in the summer.

Commentary from:

Karan Jain: CTO, Banking, Fintech advisor & Chair of Founders Anonymous

Lawrence Wintermeyer: Co-Chair of Global Digital Finance, Co-founder of Elipses & Forbes Contributor

Nick Cook: Director Innovate at the Financial Conduct Authority