The initiative, which the FCA will launch later this spring, will be opening their doors to applications on 9 May, the director said in a speech at the Innovate Finance Global Summit on Monday.
Woolard called the “sandbox” an experiment where participating firms will be able to test out their innovative ideas without immediately incurring all the normal regulatory consequences.
In Woolard’s view, there are mainly two issues at stake when launching the initiative: first, how to deliver a sandbox that lowers barriers to testing within the existing regulatory framework, and second; how to ensure that risks from testing novel solutions are not transferred from firms to consumers.
Firms requiring authorisation have so far had to incur significant costs before they can meaningfully explore consumer appetite. The sandbox includes setting up a tailored authorisation process, which means that sandbox firms will first be authorised with restrictions, allowing them to test their ideas but no more.
So the authorisation tests should be easier to meet and the costs and time to get the test up-and-running reduced.
If, after sandbox testing, the firm wants to launch itself into full activity on the wider market, it can do so if it satisfies the threshold conditions for that wider activity, said Woolard. “We think this strikes the right balance – regulation that starts in proportion to the scale of the concept being tested and can grow with the ambition of the full business model,” he added.
The criteria for entering the sandbox include genuine innovation; benefit to consumers (either direct or indirect); the idea is meant for the UK financial services market; a need for testing in the sandbox alongside the FCA; and readiness to test – in other words, being in a sufficiently advanced stage of preparation to mount a live test.
In the speech Woolard also mentioned that the FCA considered removing requirements for sandbox firms altogether, but that there are legal restrictions that limit the ability to do so.
Moreover, keeping some requirements means that the firms in the sandbox should be ready to operate in the regulatory framework after the sandbox, according to the director. And, “consumers are more likely to have confidence in a new product if it is within the regulatory framework,” he said.
