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FCA confirms Digital Sandbox for UK financial services as it continues AI work

The pilot scheme is being expanded to allow for further fintech innovation, the regulator says.

By Matthew Gooding

UK financial regulator the Financial Conduct Authority (FCA) will run a permanent digital sandbox to help financial services companies to access synthetic data and thousands of fintech APIs. This is to aid the development of new products and services as businesses incorporate more artificial intelligence and other emerging technologies into their workflows, the FCA’s head of data has said.

The FCA’s aim is to create a solutions development, prototyping and test environment, and give companies direct access to academics, government bodies, venture capitalists and charities. (Photo by rafapress/Shutterstock)

Details of the sandbox were revealed in a speech by Jessica Rusu, the FCA’s chief data information and intelligence officer, delivered to delegates at the Innovate Finance Global Summit in London earlier today.

A pilot version has been running since 2020, and it will officially become permanent this summer, Rusu said.

What’s new in the FCA Digital Sandbox?

The Digital Sandbox enables users to access synthetic transaction and market data and 200 data assets, including payments and transactions data, investment data, Companies House data, consumer data including credit data and information gathered during the Covid-19 pandemic. It also hosts an open ‘API marketplace’, which gives access to other FinTech datasets. Over 1,000 APIs have already been on-boarded, Rusu said.

It aims to create a solutions development, prototyping and test environment, and gives companies direct access to academics, government bodies, venture capitalists and charities.

Up to this point, the sandbox has only been available to participants in the FCA’s TechSprint programmes, which aim to develop solutions for specific problems, but Rusu told the summit: “From summer 2023, our Digital Sandbox will expand to support a broader range of innovators. It will be available even for applicants outside of, or after, specific TechSprint activities. 

“We benefit from supporting this innovation by promoting solutions to complex regulatory challenges like APP Fraud, greenwashing, and scam detection.” 

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Rusu highlighted the success of a recent TechSprint tackling APP fraud, where the victim is tricked into making large bank transfers to an account posing as a legitimate payee, as a way the sandbox environment is helping new products reach the market.

She said that the “use of synthetic data in the identification of methods to detect this kind of fraud resulted in 40% of SME participants either launching their product, securing partnerships or funding, and several SMEs were nominated for industry awards.”

The growing role of AI in financial services  

The rise of OpenAI’s ChatGPT and other generative AI systems has made AI a hot topic across many industries, as well as the regulatory sphere, and financial services is no exception, Rusu said.

She said: “We’re currently collaborating with the Digital Regulation Cooperation Forum and working through what the appropriate framework for AI in financial services could look like, considering feedback received from the [Bank of England’s] AI Discussion Paper, the machine learning survey, as well as our extensive engagement in the AI Public Private forum, conducted jointly with the Bank of England.

Rusu added: “In many ways, AI sits at the core of innovation and underpins many new and transformed business models. The opportunities for AI are enormous, particularly when combined with quantum computing. But the risks require careful consideration, including data bias, model risk, as well as outcomes-based monitoring implications.”

As reported by Tech Monitor, the FCA has recruited a team of experts to explore the use of synthetic data in financial services. This will include training machine learning models for fraud detection, reducing lending risk and know your customer (KYC) compliance services without putting sensitive and valuable real data at risk.

“The use of synthetic data and other privacy-enhancing technologies provides a useful way to perform data mining and build advanced models whilst protecting sensitive information,” Rusu said.

Read more: Financial services leads the way in intelligent automation

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