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May 12, 2016updated 05 Sep 2016 11:46am

FCA hands FS & fintechs a sandbox to play in

News: Companies will be allowed to breach rules if necessary.

By James Nunns

Fintech is receiving another helping hand from the UK’s financial regulator.

In a move that is designed to help innovation thrive in the UK’s fintech market, the Financial Conduct Authority has opened its sandbox.

The sandbox will be open to applications from financial firms and tech companies that support financial services. Those applications that are successful will be able to test their ideas for three to six months with consumers under loosened regulations.

The idea is to help encourage innovation in the sector and the FCA will even let some firms breach its rules if necessary, under authorisation, and the regulator will also offer "no enforcement action" letters. This means that as long as the companies stay within the sandbox guidelines, they won’t face any disciplinary action.

Tracey McDermott, Acting Chief Executive at the FCA said: "Supporting innovation is an essential part of our role in promoting competition in the interests of consumers.

"Our aspiration is that the sandbox not only enables innovative ideas to be tested and brought to market, but also helps to reduce the time and the cost of getting them there."

While the FCA has paid a lot of attention to helping start-ups, this sandbox will be open to both the challengers and to established financial institutions.

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Although many of the established financial companies have already created their own centres for innovation, such as RBS and HSBC, the opportunity to work in the regulator’s sandbox with a license to experiment may be too good an opportunity to turn down.

The FCA’s approach to regulation has seen the UK become one of the leading forces in the fintech revolution. Its active approach to assisting fintech disruption has become a model that other countries such as Australia have started to follow.

Support from the UK Government has also helped to boost the sector, which generated £6.6bn in revenue in 2015. In April the government announced the creation of a fintech panel and delivery support function which will set the fintech strategy for the UK, in addition to driving forward initiatives.

It was also revealed that a professional services information hub for fintechs would be created and so would the ‘Fintech Bridges’ program that would help companies expand internationally.

Support like this has helped to move the UK into a position of global leadership with it comes to both financial services and the fintech sector. Recently, the FinTech 50 revealed the businesses that are most likely to be a big name in the world of finance, 31 of the 50 came from the UK.

Although the UK faces stiff competition from other markets such as the US, regulations in the States has been a lot more restrictive, so even though cities like New York and San Francisco have strong tech hubs and financial sectors, they have struggled to innovate and disrupt as quickly as the UK fintechs.

Currently the regulatory landscape looks relatively favourable to fintech companies and according to a BI Intelligence report on regulation, the Second Directive on Payments Services (PSD2) will have a big impact on the European market.

The regulation will force banks to open up their systems to fintechs, allowing them to effectively act as intermediaries between banks and their customers. This will help to open up further avenues of opportunity to fintech companies that could increase the disruption to traditional players.

To be among the first companies to access the sandbox companies will have to apply by the 8th of July.

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