The Financial Conduct Authority (FCA) has published plans for implementing a ‘regulatory sandbox’ as part of its Project Innovate.

The watchdog said that the sandbox would allow businesses to test out new, innovative financial products, services and business models without incurring all the normal regulatory consequences of engaging in these activities.

The FCA believes the sandbox could reduce time to market for innovative ideas, and facilitate a better range of services for consumers. It will also enable the FCA to “work with innovators to ensure that appropriate consumer protection safeguards are built in to their new products and services before these reach a mass market”. Firms that do not yet have FCA authorisation will also be able to make use of the sandbox for testing.

The regulator intends to open the sandbox unit in spring 2016, and will consult with interested parties over the next few months. Other suggestions will also be tabled, such as establishing a virtual testing environment and setting up an authorised umbrella company that allows innovative businesses to act as its ‘appointed representatives’ for the duration of the trial.

The FCA was asked to investigate the feasibility of developing a regulatory sandbox for financial services by The Treasury. Project Innovate – which is marking its first anniversary – was also developed by the FCA to foster competition and growth in financial services, by supporting both small and large businesses that are developing new products and services.

Christopher Woolard, director of strategy and competition at the FCA, explained: “To promote competition it is vital that we support firms – both regulated and unregulated, whether large incumbent or small startups – that want to bring new ideas that can benefit consumers to market. In just one year, Project Innovate has helped over 175 innovative businesses and undertaken a number of steps to address some of the challenges that firms face. To build on this work, today we’ve set out our plans to help firms test new ideas to better understand how they may work in practice.”

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