The Sandbox launched five years ago and allows firms to test new, innovative financial products, services or business models without incurring normal regulatory consequences.
Around 700 firms have used the Sanbox services and, of the 47 firms that have completed sandbox testing, around 80% are operating in the market with a further 60 in the pipeline.
Nick Cook says that while the RegTech market is growing – investments more than doubled between 2017 and 2018 to £3,447.7 million – he still considers it to be “the sleeping giant of the financial services world”.
RegTech firms told the FCA that a key struggle is being able to demonstrate to potential customers in the financial services industry that the solution not only works, but may provide a more efficient and effective way of doing things.
Alongside developing the business case for implementation, RegTech firms also need to justify the security, procurement risk and cost requirements involved.
Cook said feedback from firms also highlighted the lack of access to “high-quality synthetic data assets against which to test new technology solutions”. In response, the FCA is now looking at what that digital testing environment might need to look like, what role it could play in supporting its creation, and whether it could be scaled across jurisdictions.
The FCA has already run a series of ‘TechSprints’ where proofs of concepts can be tested and then demonstrated to industry for a finite period of time. Cook says exploring a “permanent, data-rich testing environment is something really worth pursuing”.
Discussing the benefits of a digital sandbox, Cook said it could help regulators better understand the impact of planned or potential policy interventions as well as helping firms ensure that the products they are developing don’t pose any unintended risks to certain customer groups, such as vulnerable consumers, before they are released into the market.