Business Insider

The FCA is piloting a fintech sandbox to drive recovery from the coronavirus pandemic

Publication: Business Insider
20th July 2020

The regulator teamed up with the City of London Corporation earlier this year, and the two are now piloting a digital sandbox to drive recovery from the coronavirus. The sandbox will provide financial institutions (FIs) and fintechs with a digital testing environment. It’ll focus on detecting and preventing fraud and scams, supporting vulnerable customers, and improving access to finance for small- and medium-sized businesses (SMBs) financially affected by the crisis. It’s unclear when the venture will fully launch.

A digital sandbox could enhance financial innovation, and the FCA’s experience in the space can help make it a success.

A number of fintechs have launched new services in response to the crisis — but the changing environment makes providing appropriate solutions more difficult.Funding Xchange and Experian collaboratedto roll out an online service that businesses can use to determine their eligibility for loans, for instance. However, launching new solutions is difficult right now because borrowers’ risk level has increased, for example, while consumers’ personal finance management needs also continue to change. A digital sandbox could make it easier for fintechs to pilot solutions in the changing environment and stress test them under different scenarios to see how they hold up. The FCA has significant experience with sandboxes and has been at the forefront of their development, which will help get the new venture off the ground.It has successfully completedfive cohorts of its regulatory sandbox, which initially launchedin 2016, and is chairing a networkof regulatory bodies globally, dubbed the Global Financial Innovation Network (GFIN), for a cross-border testing environment for FIs.

Timeliness and efficient communication will be key to the digital sandbox’s success.The pandemic is ongoing and fintechs need access to the virtual testing environment as soon as possible to ensure that their solutions can be tested for a timely launch to tackle the effects of the crisis. Additionally, the FCA and the City of London Corporation have to ensure the application process is fast and smooth, so applicants don’t face long wait periods where they can’t work on their solutions. Lastly, this will be the first fully virtual sandbox program for the FCA, and it needs to double down on virtual communication efforts to further streamline the innovation process.