FCA regulation: Bye bye clipboard and grey sweater, hello ultra-modern FinTech startups as Sandbox prepares to go live

Thirty one years ago, when the quasi-judicial Securities and Investments Board gave way to the then-newly established Financial Services Authority (FSA) under the leadership of Prime Minister Margaret Thatcher and the auspices of Chancellor of the Exchequer Nigel Lawson, a new era in financial services regulation dawned, cementing the reputation of London’s financial services center as a bastion of transparency and reliability worldwide.

Today, the traditional role of the regulator – to supervise the activities of financial services firms, generate reams of bureaucratic paperwork, and conduct audits and inspections – is as obsolete as the pinstripe suit, filofax and red Porsche 944 which were de facto lifestyle accoutrements of the mid-80s City executives who well remember the inauguration of Britain’s first all-encompassing regulatory structure.

Thirty one years on, regulation is no longer about wearers of said pinstripe suit being subject to reprimands from grey sweater-wearing ex geography teachers turned compliance inspectors, as the ideology among today’s regulatory officials is rapidly becoming much more about the ultra-modern, technologically advanced methods by which the authorities that oversee financial services companies can encourage avantgarde and leading edge development among London’s plate glass institutions which now lead the world in financial technology.

According to the FCA, which on May 9 this year will launch a very interesting experimental project called “Sandbox” which is indeed a technology startup accelerator which focuses purely on the regulation of technology.

The FCA will welcome a “relatively small” number of fintech companies at this initial stage, due to the intensive amount of time and attention that they will receive from the FCA.

As far as criteria is concerned, the FCA will look for startups which demonstrate “genuinely innovative” qualities, for the benefit of customers in Britain and also which must be ready to test, meaning that they are near the end stage of their development cycle and are close to launch.

Consumers will be able to trial the product prototypes, and during the test period there will be regulatory assessment on a case by case basis, rather than a blanket rule for all.

Christopher Woolard, FCA Director of Policy and Risk Research made a statement this week at the Innovative Finance Global Summit:

“This is a bold and complex project for any regulator to undertake. As well as significant potential benefits, it comes with risks. In many ways, it won’t just be the firms that are learning in the sandbox, we will be too. The firms that are successful will be able to test out their innovative ideas without immediately incurring all the normal regulatory consequences.”

Should this test be successful, it will indeed be a case of welcoming a new type of regulatory approach, that being moving away from a hierarchical system to a new, collaborative methodology in which the regulators are as technologically advanced as the firms whose thought processes and innovative prowess they are encouraging.

Photograph: Old Street, London – known today as ‘Silicon Roundabout’ due to FinTech boom