FCA names firms involved in regulatory sandbox testing and invites future applications

The regulator has named the businesses that will shortly participate in its first round of 'sandbox' testing. HSBC and Lloyds Banking Group are on the list alongside 16 other organisations looking to test solutions ranging from a cross-border payments service that uses blockchain technology, to an app that facilitates consumer savings, and a system for automated customer authentication.

The FCA's sandbox scheme allows businesses to "test new ideas without incurring all of the normal regulatory consequences", it has previously said. In September the FCA announced that it had selected 24 firms to participate in the first round of testing under the initiative.

The FCA has now named the 18 organisations that are ready to begin testing. The tests will be carried out "on a short-term and small-scale basis" within "testing parameters" agreed with the firms. Consumer safeguards have been built-in, it said.

The regulator has also opened the process for the second iteration of its sandbox testing. Applications to participate can be submitted up until 19 January 2017. The six firms selected to participate in the first round of sandbox testing who are not yet ready to carry out that testing will be included in the second tranche of firms selected for testing, the FCA said.

Expert in financial technology law Yvonne Dunn of Pinsent Masons, the law firm behind Out-Law.com, said: "It is good to see a couple of established players in the sandbox alongside fintechs. It is important that innovation is not seen as being confined to start-ups and that important innovation will take place within established financial services businesses as well. We would hope to see more established players engage in the second round of the sandbox process."

Fellow fintech expert Luke Scanlon of Pinsent Masons said: "This first cohort will provide the FCA with an opportunity to assess the impact of regulation on key fintech concepts from open APIs, to open access to financial data, automated advice, e-money and blockchain technology and distributed ledgers. How the FCA uses its findings that come out of the sandbox process will have a significant bearing on how quickly the UK can continue in some cases, and begin in others, to be a leader in enabling fintech innovation."

The FCA's announcement was made to coincide with the second anniversary of its Project Innovate, a broad initiate aimed at supporting the application of financial technology in UK financial services.

In addition to the regulatory sandbox scheme, Project Innovate has also seen the establishment of a new 'advice unit' within the FCA to assist firms looking to develop low-cost, automated advice, also known as robo advice, to fill gaps in the current market. The FCA has also backed the development and use of regulatory technologies within financial services.