The UK FCA’s new Regulatory Sandbox initiative

Regulatory Sandbox photo

The FCA has published a report to the HM Treasury on the feasibility and practicalities of developing a regulatory sandbox as part of its Project Innovate initiative.

What is the FCA’s proposed regulatory sandbox?

The FCA describes the regulatory sandbox as:

a ‘safe space’ in which businesses can test innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory consequences of engaging in the activity in question.


The FCA intends on opening the regulatory sandbox for testing proposals in the Spring of 2016.

FCA’s recommendations for implementing the regulatory sandbox

The report notes the following recommendations made by the FCA:

  • The FCA will expand Project Innovate to include a sandbox unit: This team will be responsible for considering sandbox applications and monitoring the testing process.
  • There will be eligibility criteria for access to the sandbox: The sandbox unit will use consistent criteria to decide which sandbox proposals should be accepted for testing in this framework .
  • The FCA sandbox unit will offer a range of options: Firms face different regulatory challenges depending on a range of factors, including regulatory status and type of activity. The FCA have identified a range of available options for helping firms to address some of these challenges while testing in the sandbox.
  • The regulatory sandbox should be flexible: Safeguards for consumers and the financial system while testing will be agreed between the businesses and the FCA on a case-by-case basis. This way the FCA can ensure that protections are sufficient but at the same time not unnecessarily burdensome on the businesses considering their sandbox activities.
  • The FCA will work with industry to support the development of an industry led virtual sandbox: A virtual sandbox is an environment that enables firms to test their products and services in a virtual space without entering the real market (for example, by testing with publicly available data sets, or with data provided by other firms through the virtual sandbox). The FCA propose to facilitate collaboration between interested parties and provide support when the virtual sandbox is being developed. The FCA will look into providing access to our various systems and to some data sets.
  • Private-sector stakeholders acting together should consider setting up a not-forprofit sandbox umbrella company: This company could seek authorisation from the FCA and then allow innovative businesses to act as ‘appointed representatives’ for the duration of the trial in question. The FCA would help with setting up the umbrella and provide ongoing support and advice.
  • The Government may wish to consider whether changes to legislation may be appropriate.

Limited application to those caught by the PSD / EMD?

The regulatory sandbox proposal may not extend to all innovative financial services that want to test out their products before getting authorised. It was noted in the report that as one of the options:

A restricted authorisation and sandbox umbrella will not apply to carrying out activities outside the FSMA: e.g. payment services and e-money. The Payment Services Regulations and Electronic Money Regulations already provide for a lighter registration regime for small payment institutions and small e-money firms and a number of exemptions when these regulations do not apply (e.g. limited network).

How can you get involved?

The FCA will be holding an event in December for interested stakeholders. Details can be accessed here. If you wish to provide direct input, you can contact the FCA on email via:




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