Fintech Regulatory Sandbox

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How does the program work?

The regulatory sandbox is an initative developed by the Financial Conduct Authority which aims to introduce a regulatory sandbox, that is a ‘safe space’ in which businesses can test innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory consequences of pilot activities.

To encourage innovation and competition in financial technology, the UK’s Financial Conduct Authority (FCA) introduced the concept of a ‘regulatory sandbox’ in 2015, based on an analogy with medical trials. The sandbox provides those admitted to it with “a ‘safe space’ in which businesses can test innovative products, services, business models and delivery mechanisms while ensuring that consumers are appropriately protected”. By providing individualised guidance, waivers and modifications of certain rules, along with ‘No Enforcement Action’ letters, the FCA hopes to encourage fintech firms to innovate in a near real-world environment, without immediately incurring all the normal regulatory consequences of pilot activities.

What lessons can be learned?

About Regulatory Sandboxes and Testbeds:

Highly-regulated industries can be an especially challenging environment for startups. Complex regulations often favor incumbent firms who have more experience and legal resources. Testing prototypes in a ‘live’ environment can be particularly difficult. To help with this, some regulators have established ‘sandboxes’ where companies in the initial stages of development can experiment without the normal regulatory requirements in place. Typically, these do not absolve companies from all responsibility: as a matter of policy, they should not transfer risk to consumers nor remove individuals’ private right to redress if companies are grossly negligent or fraudulent.

Read more about this type of policy instrument in Nesta's "Digital Entrepreneurship: An ‘Idea Bank’ for Local Policymakers."

CURATED BY

Siddharth Bannerjee

Researcher, Digital Startups
Nesta
United Kingdom