Why the UK's FCA is taking its fintech regulatory sandbox global Credit: Lucian Constantin/IDGNS

Why the UK's FCA is taking its fintech regulatory sandbox global

The UK Financial Conduct Authority (FCA) is looking to expand its popular regulatory sandbox overseas, allowing members to run tests across various geographies simultaneously.

The regulatory sandbox was launched in 2016 to provide firms with the ability to test new products and services in a controlled environment, like you would test a piece of software before launching into production.

For example, Nationwide entered the third cohort to test an "automated solution providing digital savings guidance and investment advice".

Read next: How do we legislate for AI in algorithmic trading?

Sixty firms have since run controlled, observed tests in the sandbox, with 90 percent of the firms that tested in the first cohort progressing towards a wider market launch, according to the regulator.

Now the FCA wants to take what it calls "one of the largest-scale, and complex, regulatory sandboxes in the world" and scale it out globally.

In a speech at the Innovate Finance Global Summit in London yesterday, Chris Woolard, director of strategy and competition at the FCA outlined plans for the global sandbox.

"When we look to the next stage of that innovation journey, it's perhaps only natural to have an international element to it," he said.

"Over the last couple of years we have seen a trend becoming impossible to ignore," he continued. "Increasingly we are hearing from firms that demand to operate globally, to grow at real scale and real pace. They want us to be able to work with other regulators across the globe and conduct tests at the same time."

Read next: How fintech has forced UK banks to evolve beyond being a 'utility'

The FCA has already seen foreign firms apply to run tests in the UK sandbox, 30 to be exact, with the 11 successful applicants all looking to run simultaneously tests in other countries, according to Woolard.

Last month the FCA invited stakeholders to share their views on what a global sandbox should look like. "As expected there is a lot in the idea of cross-border testing, people really like the concept," Woolard said.

"The benefits it could bring in reducing cost and complexity and allow firms to accelerate expansion into other jurisdictions [are significant]."

In terms of those jurisdictions themselves, naturally the US featured heavily. Respondents also mentioned South America, Australia, Hong Kong, Singapore, South Africa, Kenya and Europe. The sensible place to start for the FCA is with "jurisdictions with their own established sandboxes and innovation hubs," Woolard said.

"Key to this is collaboration, it has to be a joint effort of international regulators, not a UK global sandbox, because clearly we can't do it alone," he added.

The next step is the creation of a blueprint for the global sandbox, and the FCA is planning to meet with regulators across Europe, the US and Asia for this exercise later this week.

The FCA has broader ambitions for the sandbox beyond simply allowing firms to test new ideas though. Woolard envisions it opening the door to global collaboration on bigger, industry-defining issues like anti-money laundering.

"In many conversations I have I hear the exact same challenges as us. We can use the global sandbox to tackle questions that could have huge ramifications for financial services," Woolard said.

"The UN estimates the full, global scale of money laundering to be $1.6 trillion annually [in 2009], so it's all about being able to apply joint expertise to try and tackle it," he added.

There are also aspirations towards defining a set of global standards as part of the sandbox project. Realistically though Woolard’s "strong suspicion" is these negotiations could take as long as 20 years.

"By the time we are there, we might be 19 years and six months out of data, so we need to be pragmatic," he said.

IDG Insider

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