Financial firms that participated in one of the world’s first “regulatory sandboxes” — which allow firms to test innovative products and services without fully complying with regulatory requirements — have found it faster, and cheaper, to get to market, according to a report published Friday from the U.K. Financial Conduct Authority (FCA).
The report detais the FCA’s experience so far with its regulatory sandbox, which was introduced as a way of facilitating innovation and competition in the financial sector. The model has since been copied in a number of jurisdictions, including Canada.
According to the report, the FCA’s sandbox “has helped reduce the time and cost of getting innovative ideas to market”. It notes that the approach has also helped startups find funding from potential investors by providing them with greater certainty about the idea being tested and its commercial viability. And, it reports that approximately 90% of the firms that completed testing in the first wave of companies that used the sandbox, “have progressed towards a wider market launch.”
Some of the challenges faced by firms using the sandbox include trouble accessing banking services, and smaller firms struggling to find customers that were willing to take part in their tests, the report notes.
“The FCA’s regulatory sandbox has been a first for regulators worldwide and we are pleased it has met a genuine demand from innovators,” says Christopher Woolard, executive director of strategy and competition, FCA, in a statement.
“We have seen tests across the full range of sectors that we regulate and I’m pleased that the majority of firms that have tested products in the sandbox have gone on to take their innovation to market,” he adds. “It is important that we continue to evaluate the success of our interventions so that we can identify areas where improvements can be made to help both firms testing and ultimately the consumers they are serving.”
The FCA will use the insights outlined in the report to inform future sandbox developments and in its broader regulatory work, including policymaking and supervisory activities.