Financial conduct authority sandbox Lara Kaplan
Lara Kaplan Background Financial Services Regulatory Lawyer qualified in England & Wales FinTech and Payments Group, Paul Hastings in Washington DC* Finance & Innovation Global Group, World Bank Consultant Previously a Lawyer at the Financial Conduct Authority in London Experience in the UK Parliament and European Parliament *not admitted to the bar in Washington DC
Uk regulatory landscape for fintech firms
FCA FOCUS ON FinTech INNOVATION OBJECTIVES HUB Began as Project Innovate in 2014 • Innovation at scale in the UK APPROACH • Direct support to firms •
Fca sandbox What is it? In-market testing environment v Predefined restrictions and regulatory dialogue v Why have one? Reduce existing regulatory barriers v Maintain consumer safeguards v Benefits such as increased understanding v How do you set one up? Public consultation v Internal political hurdle v Crypto examples in the sandbox
STAGES OF A SANDBOX JOURNEY 2 3 Firm and Once accepted, the FCA works with the FCA firm to establish the best testing FCA 1 assessment parameters, measures for outcomes, collaborate reporting requirements and safeguards. Sandbox Firm FCA reviews the proposal proposal and is accepted if eligibility criteria are met. 4 A firm submits Sandbox an application and testing business plan to the FCA begins 7 Firm decision on whether it The firm starts testing offers 6 5 solution and engages with the Firm Testing FCA and coordinates with its submits and dedicated FCA case officer. After the FCA receives and final report monitoring reviews the final report the firm decides whether it will offer the new solution outside FCA reviews the final report the firm the sandbox. submits about the outcomes of testing
Sandbox tools Informal Steer No Action Letters Individual Guidance Restricted Authorisation Waivers
Benefits of a Sandbox Regulator Benefits : Consumer Benefits : Learn technology v More effective competition v Increase knowledge v Innovative products v Help develop supervisory techniques Ensures safeguards v v Firm benefits : Early dialogue with regulator v Flexible regulatory environment v Regulatory clarity v
Designing your own Sandbox: Risks & Consumer Protection Risks with a sandbox: Four potential approaches to protecting consumers in a sandbox v Limited regulatory capacity Notify customers of potential risks and available 1. compensation; or v Uneven playing field v Liability issues Regulator agrees on a case-by-case basis any necessary 2. disclosure, protection and compensation appropriate to the testing activity of the firm; or Customers have the same rights as customers who 3. engage with other authorised firms; or Firms in the sandbox are required to compensate any 4. losses including investment loss to customers and demonstrate they have the capital to do so to be eligible for the sandbox.
Global financial innovation network Aims: How it was established: Network v Co-ordination v Co-operation & sharing v Consultation v information Projects: To join: Sandbox v Open v Regtech v Terms of Reference v Anti-money laundering v Application v
Global sandbox? Cross border testing 44 applications, 17 participating regulators v Majority were in RegTech and crypto-asset related business v Operation of the Global Sandbox: models Test for regulators as much as for firms v Meet application requirements in all Concurrent testing across multiple jurisdictions v v jurisdictions Joint policy discussions and events v Each regulator ensure own safeguards v and firm eligible Dedicated team to collaborate between v Example: firms and regulators Tradle: a blockchain based KYC and onboarding platform Pilot test run for 6 months v that uses artificial intelligence and cloud services to help Want firm feedback v institutions meet regulatory obligations. They are working on self-executing cross-border KYC policies. The relevant regulators are: Abu Dhabi Global Market (ADGM) and FCA.
Any questions? Contact email: lkaplan1@worldbank.org
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