FCA's Sandbox: Keeping start-ups on the straight and narrow

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FCA's Sandbox: Keeping start-ups on the straight and narrow

The sandbox involves eight FCA staff members who work directly as part of the 30-strong Project Innovate, while five people work in the advice unit, also part of Project Innovate. Working on a 'hub and spoke' structure, the sandbox staff will put accepted candidates in touch with the right people, developing a bespoke testing programme.

A big part of the project is to put in place safeguards to allow the company to test its tool in a limited way. So, for example, a complex robo-investment tool may only be tested on a limited number of high-net-worth individuals, and technological assistance may be double checked by a human adviser.

Key Points

  • The FCA's Regulatory Sandbox was devised to assist the development of products in a safe regulatory environment
  • The regulator offers input into the product with limited authorisation
  • Fintech firm found the sandbox helpful in assisting product development

A large part of the sandbox is financial services firms being able to apply for restricted authorisation, under the test. If they waited to get to market it would have to go through the process of full authorisation.

Patrick Frith, operations director of Bud, a consumer finance platform, said: "I'm not sure our company would be in existence without the sandbox. You're not working for a social media app, you're dealing with people's money, and you need to understand regulation.

"The sandbox was not a handholding exercise. They would say 'please submit your application' and we got authorised with restricted permissions, which meant we couldn't have any appointed representatives and we could have any more than 100 investors.

"It allowed us as a start up to build regulation into the product, and to understand how the FCA thinks. They wanted to see how it's going. We just needed a bit of guidance. We're talking to them and they need to understand what you're trying to achieve, and the framework is there to achieve it."

Bud went through the sandbox twice, first as a direct-to-consumer platform, where people can consolidate their finances into one place, and then as a service that can be used by banks for their customers.

"There's a misconception that you go in and can basically launch any product and the FCA will say you'll have no repercussions. You need to be very specific with the FCA."

For example, when Bud was developing its service, it was trying to steer a path between offering generic information about debt counselling and guidance, and specific advice.