The FCA's sandbox: Is it back to the future for fintech?

The FCA's sandbox: Is it back to the future for fintech?

The fact that I was tempted to christen this month’s technology column ‘Why Donald Trump Is Bad For Financial Services, Fintech And Everything You Hold Dear’ may give you a clue as to the exact day on which I’m writing it. I’m tired, I’m grouchy, and if there’s a space on any Mars missions going I’d like to get on board.

This column isn’t an anti-Trump polemic, although if he carries through on some of his policies then there will be some impacts. Instead, I want to return to a topic we’ve covered here before – the FCA’s regulatory sandbox and what’s in it.

Oh, OK then, just quickly. Trump has suggested he’ll make it harder for big US companies to bring in coders from abroad on visas. Ex-car workers from the rust belt states will, presumably, become ninja-level .Net coders and take on these positions.

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He’s also suggested that he may force US companies to manufacture in the US or face tariffs. This would have a profound impact on Apple, Microsoft, Dell, Amazon, Google and many others. Specifically, it’ll push prices up, and you can be sure those prices will be going up internationally. We all get to share.

He’s also suggested radically beefing up the US’s snooping capabilities, which are already pretty good. It doesn’t take a catastrophic to spot that if you, as advisers, are using cloud-based services that take advantage of EU safe harbour rules, then you may have to readdress some of your processes. And of course if we’re not in the EU, then Lord only knows where you’ll be allowed to keep your clients’ data. I’m thinking about offering my garden shed. Only £1m per GB of storage, OK?

Back to it. The FCA has announced the first 24 companies that are allowed into its sandbox, from a total of 69 entries. When I had a sandbox, no more than three or four of us were allowed in it at a time, to stop the sand going everywhere, and the FCA’s approach looks pretty similar.

We’ll see further cohorts entering the programme next year, and the FCA has been pretty open in saying it’s kicked out a few propositions who it felt weren’t ready for market.

I’ve written here before about the fact that the fintech companies who are really attracting the big investments from VC and private equity funds aren’t, in the main, in the long-term savings and investments space. They’re in things that make money in less than a decade. Therefore money transfer services are of interest. Challenger banks are. Loan providers are, and never mind the ethics.

Much the same is true of the sandbox. Our very understandable and natural self-confirmation bias drives us to think that the sandbox will be stuffed full of robo-advisers, D2C platforms and so on. It’s not. Nearly half the list is made up of – you guessed it – money transfer services and relatively vanilla propositions that use distributed ledger or blockchain technology underneath. In fact, if there’s one winner in the sandbox, it’s blockchain.