FCA Regulatory sandbox

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The FCA Regulatory Sandbox is a program established by the Financial Conduct Authority (FCA) that provides a 'safe space' for businesses to test innovative financial products in a live environment.
What are the main aims and objectives?
The main aim and objective of the FCA Regulatory Sandbox is to provide a safe and controlled environment for businesses to test innovative financial products, services, business models, and delivery mechanisms. The sandbox enables firms to test their innovations with real consumers in a live market, while ensuring appropriate safeguards are in place. The FCA's sandbox seeks to promote competition in the interest of consumers by allowing firms to bring innovative ideas to market more quickly and at potentially lower cost. Through the sandbox, the FCA aims to learn more about emerging technologies, promote innovation, and support growth in the financial services industry, while maintaining consumer protection and market integrity. 
How does the program work?

The FCA defines the regulatory sandbox as a testing environment that allows businesses to test innovative propositions with real consumers in the live market while ensuring that appropriate safeguards are in place. The regulatory sandbox helps firms to better understand and fine-tune their business models through live testing, which increases credibility with investors and customers. 

The sandbox is a supervised space, open to both authorised and unauthorised firms, that provides firms with: 

  • reduced time-to-market at potentially lower cost 

  • appropriate consumer protection safeguards built in to new products and services better access to finance 

The sandbox offers tools such as restricted authorisation, individual guidance, waivers and no enforcement action letters. FCA closely oversee trials using a customised regulatory environment for each pilot – including safeguards for financial consumers. 

Sandbox tests are expected to have a clear objective (eg reducing costs to consumers) and to be conducted small scale, so firms will test their innovation for limited duration with a limited number of customers. 

The sandbox is open to the following types of businesses: 

  • Businesses seeking authorisation - The sandbox may be useful for firms that need to become authorised before testing their innovation in a live environment. 

  • Authorised businesses - The sandbox may be useful for authorised firms looking for clarity about rules before testing an idea that doesn’t easily fit into the existing regulatory framework. 

  • Technology businesses supporting financial services firms - Technology businesses that want to provide services to our regulated firms (eg through outsourcing agreements) can also apply for the sandbox if they need clarity about rules before testing. 

What is the overall cost?
There is no available information about the running costs of the FCA Regulatory Sandbox. However, research by the World Bank Group and the Consultative Group to Assist the Poor (CGAP) found the regulatory sandboxes can cost over $1 million to run once human resources and salaries are factored in.  
How was it implemented?

In October 2014, the FCA launched “Project Innovate” to encourage innovation in order to benefit consumers and to promote competition. This project was designed to support new fintech firms in meeting the FCA’s eligibility criteria and to better understand regulatory policies and strategies. This program evolved into the FCA Regulatory Sandbox which was first launched in 2016.  

Applications for the sandbox were initially only accepted in cohorts of which there was one every half year, however, since 2021 it has evolved to an always-open model and eligible firms may apply at any point in the year. Once accepted into the Sandbox, firms have access to regulatory expertise and support for identifying consumer protection safeguards. 

What impact has been measured?

The FCA can demonstrate relatively high levels of interest and approved applications to the program with 575 applications being received since 2016 with 174 applications receiving approval (a rate of 30.26%).  

Cohort 

Number of applications 

Number of awards 

% approved 

Cohort 1 

69 

14 

20.29% 

Cohort 2 

77 

31 

40.26% 

Cohort 3 

61 

18 

58.65% 

Cohort 4 

69 

29 

42.03% 

Cohort 5 

99 

29 

29.29% 

Cohort 6 

68 

22 

32.35% 

Cohort 7 

58 

13 

22.41% 

Since August 2021 

74 

18 

24.32% 

Total 

575 

174 

30.26% 

It is clear from the number of companies that have participated in the FCA Regulatory Sandbox that the FCA has successfully met its objectives of providing a space for businesses to test innovative new products. However, there is a lack of available analysis about the impact that the companies that have participated in the sandbox have had on their respective industries. Indeed, a report in 2021 found that out of 108 that had gone through the Regulatory Sandbox, 24 firms (22%) had gone out of business.  

What lessons can be learned?
In 2017 the FCA published a lessons learned report which highlighted some specific challenges that firms had found for successfully testing their innovation. They included: difficulties accessing banking services; difficulties attracting customers; access to consumer data and integration with APIs; and difficulties meeting conditions for authorisation. They also found that partnerships between large firms and startups in the sandbox had proved to be a successful model for both parties.   

CURATED BY

Sarolta Borzasi

Director for Government + Investor Engagement
Embassy of Hungary London
United States