Blockchain, AI prevail in FCA sandbox second cohort

Maria Nikolova

Accepted propositions from companies in the second cohort range from DLT-based payment services to AI software to observe client behaviour and help determine client preferences before financial advice is provided.

The UK Financial Conduct Authority (FCA) has just provided an update on its regulatory sandbox that allows firms to test innovative products and services in a live environment while making sure that consumers are protected in the right manner.

The FCA said it had received 77 submissions for the second phase of the regulatory sandbox, more than the 69 applications received for cohort one. The current cohort consists of 24 firms that are ready to start testing soon. Tests will be run on a short-term and small-scale basis.

Accepted propositions from firms in the second cohort cover a variety of ideas including distributed ledger technology based payment services and artificial intelligence software to observe client behaviour and to help determine client preferences before financial advice is provided.

BlockEx, for instance, plan to test a bond origination, private placement and lifecycle management platform based on distributed ledger technology. nViso will test an online platform providing advisors and clients behavioural assessment profiles generated by artificial intelligence and facial recognition, whereas ZipZap develops a cross-border money remittance platform that chooses the most efficient means for a payment to reach its destination, including via digital currencies.

The FCA is now accepting applications from firms that wish to be part of its third sandbox phase. Firms have until July 31, 2017 to submit their applications. The eligibility criteria, application form and detailed instructions are available on the Regulatory Sandbox pages. The FCA expects all accepted firms to be ready to commence testing from November 2017.

Regarding cohort one, the FCA says that that 18 firms had testing plans approved in October 2016. The six-month testing window has now closed and firms are filing their final reports, which will be reviewed before the firms transition out of the sandbox. The regulator says that most of the tests have developed as planned.

In the spring of 2016, when the FCA sandbox was launched, FinanceFeeds stressed the vital role of such an approach towards regulation. In case this experiment is successful, it would mark a shift towards a new collaboration-focused regulation of fintech firms.

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