Project Innovate: FCA announces successful sandbox firms

Written on 1 Feb 2017

On 7 November 2016, the FCA announced the names of the 18 firms that had been successful in their applications to begin testing in the first cohort of the regulatory sandbox. Whilst 24 applicants were deemed to meet the sandbox eligibility criteria and were accepted to develop towards testing, six firms were not ready to begin testing and will be part of cohort two.

Background to Project Innovate and the regulatory sandbox

Project Innovate kicked off in 2014 with the aim of providing innovators with support to navigate the regulatory system and promote competition in the interest of consumers. A key element is the regulatory sandbox which is intended to be a ‘safe space’ from within which businesses are able to test innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory consequences of engaging in the activity in question.

For authorised firms, the sandbox may be useful if they are looking for clarity around applicable rules before testing an idea that does not easily fit into the existing regulatory framework. For businesses that are unauthorised, they will need to be authorised to test their innovation but the FCA have set up a tailored authorisation process to work closely with firms accepted into the sandbox in order to enable them to meet these requirements. Any authorisation or registration will be restricted to allow firms to test only their ideas as agreed with the regulator. The aim is to make it easier for firms to meet the FCA’s requirements and reduce the cost and time to get the test up and running.

Criteria for using the sandbox

In order to be able to use the sandbox, the FCA established eligibility criteria which firms must satisfy as a prerequisite for entry into the sandbox:

  • the firm is looking to deliver innovation which is either regulated business or supports regulated business in the UK financial services market;
  • it is novel, or significantly different to existing offerings;
  • there is an identifiable benefit to consumers that will continue throughout testing;
  • the product genuinely needs to be tested in the sandbox; and
  • there have been appropriate resources invested in the new solution, the applicable regulations are understood and risks mitigated.

Sandbox firms

In September 2016, Chris Woolard (FCA Director of Strategy and Competition) confirmed that interest in the initiative has been high, with the 69 applicants far exceeding the FCA’s expectation. The FCA was required to expand its team to cover the diverse range of firms (start-ups, challengers and incumbent firms) that fell within the group of 24 that was accepted to develop towards testing . Not only was the demographic of those firms diverse, covering both domestic and international geographies, the range of sectors covered was also broad – including retail banking, insurance, advice and profiling and IPO.

Of the 24 firms accepted, 18 have been confirmed as ready to begin testing shortly. The FCA has worked with those firms to agree testing parameters, building in customer safeguards and will conduct tests on a short-term, small-scale basis. The remaining six will be part of cohort two.

Second sandbox cohort

Firms could apply to be part of the second sandbox cohort from 21 November 2016. The application period closed on 19 January 2017. The FCA continues to encourage firms of all sizes to apply – its website has been updated with additional information about the application process, including some tips for those applying for the second cohort. The test design period for cohort two will take approximately 10 weeks and the FCA expects all accepted firms to be ready to begin testing in May 2017.

Points of interest

In May 2016, the FCA considered the next steps for Project Innovate and highlighted the lack of engagement from the large incumbent businesses. The FCA committed to building a programme of proactive engagement with these market players – it is therefore interesting to note that both HSBC and Lloyds Banking Group are part of the 18 that will shortly begin testing. For information, we have listed the successful firms and provided the FCA’s overview of the products and services that will be tested:

Firm Product/Service Description
Billon An e-money platform based on distributed ledger technology that facilitates the secure transfer and holding of funds using a phone based app.
BitX A cross-border money transfer service powered by digital currencies / blockchain technology.
Blink Innovation Limited An insurance product with an automated claims process, which allows travellers to instantly book a new ticket on their mobile device in the event of a flight cancellation.
Bud An online platform and app which allows users to manage their financial products, with personalised insights, on a single dashboard. Bud’s marketplace introduces relevant services which users can interact with through API integrations.
Citizens Advice A semi-automated advice tool which allows debt advisers and clients to compare the key features of available debt solutions.
Epiphyte A payments service provider that aims to provide cross-border payments using blockchain technology.
Govcoin Limited A technology provider that has partnered with the Department for Work and Pensions (DWP) to determine the feasibility of making emergency payments using means other than cash or the Faster Payments Scheme. The payments platform will use blockchain to allow the DWP to credit value to a mobile device to transfer the value directly to a third party.
HSBC An app developed in partnership with Pariti Technologies, a FinTech start-up, to help customers better manage their finances.
Issufy A web-based software platform that streamlines the overall Initial Public Offering (IPO) distribution process for investors, issuing companies and their advisors.
Lloyds Banking Group  An approach that aims to improve the experience for branch customers which is aligned with the online and over the phone experience.
Nextday Property Limited An internet-based property company that will provide an interest free loan for a guaranteed amount to customers if they are unable to sell their property within 90 days.
Nivaura A platform that uses automation and blockchain for issuance and lifecycle management of private placement securities.
Otonomos A platform that represents private companies’ shares electronically on the blockchain, enabling them to manage shareholdings, conduct bookbuilding online and facilitate transfers.
Oval An app which helps users to build up savings by putting aside small amounts of money. These savings can then be used to pay off existing loans early. Oval will be working with Oakam, a consumer credit firm, and a number of their customers during the test period.
SETL A smart-card enabled retail payment system based on OpenCSD distributed ledger.
Tradle An app and web-based service that creates personal or commercial identity and verifiable documents on a distributed ledger. In partnership with Aviva they will provide a system for automated customer authentication.
Tramonex An e-money platform based on distributed ledger technology that facilitates the use of “smart contracts” to transfer donations to a charity.
Swave A micro savings app that provides an across-account view, enables a round-up service every time a user spends money and calculates an affordable savings amount based on the user’s spending behaviour.