The director of strategy and competition at the UK’s Financial Conduct Authority (FCA) and the man in charge of the watchdog’s innovation initiatives has warned against “wild west” versions of the regulatory sandbox emerging without applying the standards applicable in the UK.
Christopher Woolard from the FCA was speaking late last month at the Innovate Finance Global Summit where he noted that the concept of his body’s Project Innovate and its accompanying sandbox had “caught the eye of regulators around the world.”
“In the last few months alone we’ve signed co-operation agreements with colleagues in China, Japan, Canada and Hong Kong,” he told the audience in London. “This transfer of ideas and innovation breaks down barriers to entry, giving firms more freedom and flexibility to innovate. It increases the potential for international collaboration. This is in the interest of both consumers and the wider economy.”
However, he warned that despite the interest, there were challenges in dealing with innovation that needed to be addressed and suggested that a “wild west version” of the UK’s regulatory sandbox could emerge.
“This runs entirely counter to our ambitions, which we know many share, for responsible innovation, which, rather than risk diminishing outcomes for consumers, should enhance them,” he said. “We also believe that a sandbox that fails to prepare firms to join the regulated market will not foster firms that succeed long-term. We also see potential risks to the reputation of and trust in financial innovation if there are examples of global failures in the future.”
The FCA launched its regulatory sandbox in November 2015 as part of its long-term Project Innovate programme and in May last year it announced the names of 18 companies that had bene accepted onto the programme.
The FCA said at the time that a sandbox could deliver a number of benefits to innovators, including reducing the time it takes for ideas to come to market. It was hoped the benefits to firms would also lead to better outcomes for consumers, such as an increased range of products and services. Importantly, the sandbox also enables the body to work with innovators to ensure that appropriate consumer protection safeguards are built in to their new products and services before these reach a mass market.
Woolard said last month that he understood that differing regulators would use the idea of regulatory sandboxes for a range of goals and outcomes. “Sometimes (regulators want) to deliver better value for consumers. Sometimes to deliver financial inclusion and access. There is unlikely to be one standard that fits all, just as we see many different types of financial regulation.”
The regulatory sandbox developments in the sphere of financial services have also been noted in public comments from the UK’s Gambling Commission whose chief executive Sarah Harrison has said previously that it would like to see gambling operators applying similarly forward-thinking approaches to compliance issues as they do to their operations and marketing.
However, the Commission has steered clear of any inference that it would instigate a similar sandbox approach, with a spokesperson suggesting that Harrison’s comments should be seen as an acknowledgement that the industry will “continue to look at ways to innovate in order to survive in a competitive market and that as a regulator we recognise that.”