Industry Sandboxes as a Shared Utility
By Dea Markova, Innovate Finance
At Innovate Finance we believe the success of the FinTech sector relies on collaboration between entrepreneurs that have the freedom to innovate and the enterprises that have the power, and need, to adopt innovations and create better products and services. Often, break through innovations are born outside the walls of any one institution.
This synergy is not novel as a concept but the increased corporate demand for technologies by start-up vendors is the trend. With this trend comes the recognition that enabling corporates to procure technology from start-ups is a friction-full process, particularly in the highly regulated FinTech environment.
Streamlining that process is a key priority for Innovate Finance — it is reflected in the diversity of our membership and in the design of our programmes we design for them.
In this work, we are joined by other great acceleration and innovation programmes in the global FinTech space. Importantly, with its consultation on the Regulatory Sandbox, the UK Financial Conduct Authority (FCA) has given a mandate to industry to consider what shared utilities it can create to fast-track innovative ideas going to market.
This mandate is reflected in the concept of an “industry led sandbox” which the FCA put forward in November 2015. As announced at the Innovate Finance Global Summit in April this year, Innovate Finance has taken the responsibility to lead an industry-wide consultation on the demand for and viability of such a sandbox being established in the UK.
In parallel, on 9 May, the FCA launched applications to its own Regulatory Sandbox — you can read all about it here, apply here or get in touch with our FCA secondee Josh Eves here for more details.
What is an “industry led” sandbox?
An industry led sandbox is a controlled environment that enables any innovative company to test the viability of its products or service before going to market. It is a space for off-market testing, unlike the Regulatory Sandbox, which enables innovative products to go to market in a controlled way. Such sandbox will be equipped with with access to systems, data sets and APIs, certain other tools, and supported by a critical mass of technology, legal and regulatory and other professional advice.
The sandbox provides an opportunity for industry to pool resources to overcome common hurdles in adopting innovative technology. It also supports the regulator in its objective to facilitate market competition, and gives the FCA early sight of solutions, which may need to be regulated.
Its guiding principles are:
· There are clear and consistent requirements for access to the sandbox
· It is funded and operated by industry
· It is affordable for small start-ups
· It has clear policy on data handling and storage in compliance with legal and regulatory requirements
· The data and MI from the sandbox accessible to the FCA, subject to legal constraints and considerations of proportionality
What could an industry led sandbox look like?
The FCA consultation mentioned a “virtual” sandbox i.e. “an environment that enables firms to test their products and services in a virtual space without entering the real market”.
Determining the optimal design of this space, the blueprint of an industry led sandbox is one of the key outputs of the consultation we are undertaking.
There are many design decisions to consider:
§ Should industry resource a platform for data set providers and start-ups to connect on?
§ How will intellectual property be treated? Will start-ups be engaged in cohort, or on a rolling basis?
§ Will there be one sandbox or multiple, vertical-specific ones? How will the regulator be engaged?
§ How can the industry led sandbox interoperate with existing testing environments or accelerator programmes?
During the consultation process we will reach out globally to address such questions and to develop a working framework.
What can industry expect from the Innovate Finance consultation?
Innovate Finance will run a consultation on an industry led sandbox in the UK between July and December 2016, with the findings published in a blueprint before the end of the calendar year. We will engage industry through best practices research and case studies, industry-wide surveys, and a series of in-person design workshops.
Who should get involved and how?
The sandbox will be open to all global UK FinTech industry participants –including early-stage start-ups, data and technology vendors, financial services institutions, regulators as well as research centres and academia.
In the consultation phase, we will seek input from UK stakeholders and relevant experts, start-ups, and institutions globally. At the first instance, please get in touch to express your interest in engaging with us on this project.
