FCA accelerates digital sandbox pilot to support firms amidst the Covid-19 pandemic

The FCA released a statement setting out its proposal to accelerate the digital sandbox pilot in order to enhance regulatory support for innovative firms amidst the Covid-19 pandemic. The FCA states that it is swiftly progressing plans to allow innovative firms to trial services and products in a digital testing environment, especially those that are tackling Covid-19 related challenges.

The FCA will be updating its webpage with information on the specific proposals, and welcomes both feedback on its proposals and expressions of interest from firms (regulated or unregulated) and stakeholders who are interested in participating or would like to contribute to the development of the digital sandbox.

The digital sandbox – FCA’s plans

The FCA is already a global leader in innovation, having set up the world’s first regulatory sandbox and being at the forefront of the Global Financial Innovation Network’s sandbox. Our article of February 2019 explores the FCA initiatives in this sphere, including those of other global regulators. The FCA also recently highlighted in its business plan 2020/2021, its intention to explore the impact of its ‘sandbox services’ on the wider adoption of technologies, particularly those focused on RegTech. Thus, it is no surprise that amidst the plethora of Covid-19 measures, the FCA has fast-tracked the launch of the digital sandbox pilot.

The digital sandbox will offer enhanced versions of features currently available through the FCA’s Innovation Hub, Regulatory Sandbox and TechSprint programmes. It will allow innovative firms to test and develop proofs of concept in a protected digital environment as well as facilitate collaboration with key stakeholders to address industry-wide problems. Though a pre-Covid 19 initiative, the FCA now intends to pilot aspects of the digital sandbox on a modular basis to provide support to innovative firms and their customers during the pandemic.

How will the digital sandbox work?

The FCA notes that developing a permanent digital testing environment will provide significant value to UK financial services. The digital sandbox is also recognised as a plausible alternative for firms which do not meet the testing requirements of the FCA’s regulatory sandbox, and thus provides a wider scope of opportunity for firms.

The FCA highlights the following features as foundations of the digital sandbox:

• Access to high-quality data assets – accessing synthetic or anonymised data sets to enable testing and validation of technology solutions.
• Regulatory call-to-action – enabling identification of areas of regulatory interest which can increase innovation or issue specific challenges.
• A collaboration platform – facilitating diversity of thinking, sharing learnings and fostering an ecosystem around solving complex industry wide challenges.
• An observation deck – observation of in-flight testing to inform policy thinking in a safeguarded environment.
• Application programming interface (API) or vendor marketplace – an environment for FinTech, RegTech and other vendors to list their solutions and APIs in order to encourage greater interoperability and foster a thriving ecosystem.
• Access to regulatory support – development of testing plans, signposting to relevant regulations, informal steers or support to understand the wider regulatory environment or the authorisation process.

The FCA confirms that the effectiveness of relevant features and tools will be tested via the pilot to support firms developing specific use cases and will shape FCA thinking accordingly.

The digital sandbox next steps

The FCA will update its website with details of the digital sandbox features, together with specific proposals for launching a Covid-19 pilot. The FCA intends to develop the pilot in collaboration with the financial services industry; regulated firms, unregulated firms and other stakeholders are being invited to contribute to the pilot and provide feedback on the proposals.

Applications to be part of the digital sandbox will be accepted from the summer (2020), and interested stakeholders should email the FCA at [email protected] to express interest or find out further information.

Our view

We welcome the FCA’s plans to accelerate the digital sandbox pilot and expedite the development of solutions to the Covid-19 pandemic. The current crisis provides a unique opportunity for the FCA to create an appropriate and effective digital testing framework while also shaping its role within it, setting up a platform to scale across jurisdictions and ensuring that they are at the forefront of developments. We look forward to finding out more about the FCA’s proposals and how innovative firms will help provide solutions to Covid-19 challenges.

CMS has industry leading experts that can help you manage your business response to the Covid-19 pandemic and advise on how to comply with your regulatory obligations given the pressures caused by this crisis. We also act for firms who have been part of the FCA’s regulatory sandbox and can advise on any questions with respect to the digital sandbox.

Co-authored by Oliver Bridal.

This article was first published in Thomson Reuters on 15 May 2020.