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FCA to launch financial services ‘test bed’

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The FCA has announced plans to launch a “safe space” where firms can test out new products and services without the normal regulatory consequences.

The regulator was asked to investigate the feasibility of developing a so-called regulatory sandbox by the Treasury.

In a report published today, the FCA says it will expand Project Innovate to include a sandbox unit, which would consider sandbox applications and monitor the testing process.

This will open in spring 2016 and be tested with a limited number of firms over the first year.

The sandbox will allow unauthorised firms to test out new propositions by granting them authorisation with restrictions. The restrictions can later be lifted once the firm is able to meet full requirements.

For authorised firms, the FCA says it could issue ‘no enforcement action letters’.

These would state that no enforcement action will be taken against testing activities where the FCA is satisfied the activities do not breach its requirements or harm its objectives.

The regulator adds it would be appropriate for it to reserve the right to end a trial, and that firms would still have a liability towards their customers.

The FCA says: “We believe that the benefits that the sandbox can bring to firms should lead to better outcomes for consumers through, for example, an increased range of products and services, reduced cost, and improved access to financial services.

“However, there is potential for customer detriment when innovative financial products or services are tested in real life situations. This risk needs to be carefully managed.”

It says there are a number of options to ensure consumer protection. These include requiring customers to give consent to be included in a trial, or giving customers the right to complain to the Financial Ombudsman Service and Financial Services Compensation Scheme.

The regulator says its preferred option is for it to agree on disclosure, protection and compensation with firms on a case-by-case basis.

The FCA also suggests that a “virtual sandbox” could be introduced by the industry.

This would be an environment to enable all firms, whether regulated or not, to test their solutions virtually without entering the real market.

It says private sector stakeholders should also consider setting up a not-for-profit sandbox umbrella company. This would need to seek authorisation from the FCA and could then allow businesses to act as appointed representatives for the duration of the trial.

Project Innovate was set up a year ago and has so far helped 175 firms, five of which have now been authorised to undertake regulated activities.


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. “without the normal regulatory consequences”, but “firms will still have a liability towards their customers”. I think I’ll avoid that particular sandbox, just in case a few cats and dogs have been using it.

  2. What is a sandbox…why can’t they speak English?

    To me a sandbox is a place where cats take a poo. So a regulatory sandbox would be…?

  3. For anyone who really doesn’t know Sandbox has long been a term used in software development for a safe place to test out new stuff (and it refers to kids playing one… you’re thinking of a litter tray).

    3 Years on since I proposed the Innovation Unit that has been dubbed ‘Project Innovate’ and 1 year & 175 firms in this is signalling it’s success.

    This will open in spring 2016 and, interestingly, was requested by the Treasury.

    This is just the beginning and is part of a global tectonic shift. With ink just drying on the US #JOBSact this will this spur the #SEC and other global regulators on.

    There’s more here :

  4. Its clearly plain to see regulation is broken, and does not work ! why else would there be any need for sandpit ! (sandbox)
    And by the use of such a phrase, its evident the industry are to be treated as a bunch of toddlers !

    The very last paragraph of the page reads-:

    “Project Innovate was set up a year ago and has so far helped 175 firms, five of which have now been authorised to undertake regulated activities.”

    Helped 175 but only 5 authorised ( in plain speak, made it through) a 2.85% success rate…………. are you f/// kidding me ?

    They (the FCA) really are the biggest and most expensive bunch of morons I have ever had the misfortune to come across…..ever !

  5. Is it just me or this was warped as it sounds? So this “sandbox” is created to allow for safe testing new products without the full reg costs. HOWEVER the people agreeing to be part of the test will still have protection of FoS and FSCS. How is this any different to now? Second point is that at some point after a successful period of testing the products will eventually be launched to the mass market in order for the innovators to get scale and make a profit and at that point it is outside the safety of the sandbox and will incur full reg costs. So how on earth does this help the industry OR the end users?
    Surely to God it would make mush more sense and have immediate benefits to everyone if the FCA took a decision that all existing, simple and well established products had very light touch regulation in order to make them less expensive to deliver and service. For example there could be much less research needed and much simpler and shorter Suitability letters needed in order to document that say someone sinking the annual allowance into an ISA and its recommended funds are suitable.

    Someone who wants to invest £200 or £300pm in a pension or £50pm in ISA could fall under the same light touch scenario. It is these types of people who are currently loosing out on good sound advice from professionals as it simply is not profitable to do any more at a fee level that is acceptable to the client. If the correct fee level is charged to make it viable for the adviser, the client is unlikely to want or be able to afford to pay it.

    It is a catch 22 situation and the only people who can change this are the ones who have created the problem in the first place, the FCA and the FoS. They need a list of simple products that are able to be delivered cost effectively for the savers and at a profit margin to those delivering them. If they carry on with these sandbox products and some become tried, tested and approved as providing better outcomes, then over time these could be added to the list of simple products and therefore with the benefit of lower delivery costs the masses can once again have access to affordable advice.

    Is this not a sensible and very inexpensive to strategy to implement, or is this just not within the grasp of the FCA’s mentality and ability

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