Responding to a request by HM Treasury, the FCA report runs through the practicalities of developing a “safe space” to test products, services or business models in a less onerous regulatory environment.
The sandbox unit will be open to firms’ proposals in spring 2016 and has predicted the following benefits: reduced time to market at a potentially lower cost; better access to finance; more innovative products reaching the market.
Crucial growth stage
The FCA report said: “Financial innovation relies on investment, much of it through equity funding.
“Regulatory uncertainty at a crucial growth stage means that fintech firms find it harder to raise funds and achieve lower valuations as investors try to factor in risks that they are not well placed to assess.”
"There are plenty of ideas that never see the light of day because firms cannot afford the regulatory costs of launching them"
Certain areas of interest to date have included robo-advice, block-chain transaction tools and tools to help comply with regulation, or ‘regtech’, but the FCA has stipulated ‘innovation’ need not only refer to technological solutions.
The watchdog is inviting firms – regulated or otherwise, trade bodies, accelerators, technology companies, consumer groups and other interested parties to take part in its event next month to further scope out the project.
The report marks a year into Project Innovate, which was designed to support innovation across financial services and address some of the challenges that currently exist for the sector – whether large incumbents or smaller start-ups.
Collaboration
Lee Robertson, chief executive at Investment Quorum, said: “I think this is the right thing for the regulator to do. It shows it is listening and feels collaborative, so looks like a pretty positive move.
“There are plenty of ideas that never see the light of day because firms cannot afford the regulatory costs of launching them. This allows them to look at the new ideas without the risk.”
The report describes how half of the promising ‘disruptive’ fintech startups are in the UK.
“To remain Europe’s leading fintech hub, we have to ensure that we continue to be an attractive market with an appropriate regulatory framework,” it said.
Exploring ideas
Ian McKenna, director at Finance & Technology Research Centre, said: “The intention is to allow the industry to explore fresh and innovative ideas that would normally be outside the scope of the usual regulatory thinking.”
