More than 40% of firms accepted to Cohort 4 of FCA regulatory sandbox are using DLT

Maria Nikolova

The FCA received 69 applications to cohort four of the regulatory sandbox, with 29 firms to proceed to test.

The UK Financial Conduct Authority (FCA) today provided an update on the progress of its regulatory sandbox initiative.

The sandbox, as you may be aware, allows firms to test innovative products and services in a live environment while making sure that consumers are protected in the right manner. It is part of Innovate, an initiative which was launched in 2014 to promote competition in the interest of consumers. Since its inception Innovate has had over 1200 applications and has supported more than 500 firms.

The FCA received a total of 69 applications to cohort four of the regulatory sandbox, an increase on the number of applications to cohort three, with 29 firms to proceed to test. The successful applications come from various sectors, locations and firm sizes. Areas covered include consumer credit, automated advice and travel insurance.

Christopher Woolard, executive director of Strategy and Competition at the FCA, commented:

“I am pleased to say that this is the largest sandbox cohort to date with a record number of applicants meeting our eligibility criteria. Cohort 4 has seen a large increase in the number of firms testing wholesale propositions including firms that are aiming to increase the efficiency of the capital-raising process. Alongside these we can see significant use of distributed ledger technology (DLT), some experimentation with cryptoassets which will help inform our policy work and propositions aimed at helping lower income consumers.”

More than 40% of companies accepted to cohort four are using distributed ledger technologies (DLT). Of these, six are using DLT to automate the issuance of debt or equity. Two are using DLT to support the provision of insurance. Other technology applied includes geo-location technology, use of Application Programming Interfaces (APIs) and artificial intelligence.

Eight firms (27%) are operating in the wholesale sector.

The regulator has accepted a small number of firms that will be testing propositions relating to cryptoassets. The FCA says it is keen to explore whether, in a controlled environment, consumer benefits can be delivered while effectively managing the associated risks.

Let’s note a couple of projects included in Cohort 4. Natwest, for instance, proposes a governance model based on DLT that enables organisations to work collaboratively on developing and running decentralised applications. The model codifies society rules in smart contracts on a blockchain creating a digital mutual. NatWest will open source the code after successful testing.

And Chasing Returns will test a psychology-based risk platform that promotes good money management discipline and improves outcomes for customers that trade Contracts for Difference (CFDs). It acts like a digital coach, encouraging adherence to money management and risk exposure levels.

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