Global Financial Innovation Network invites applications for testing of innovative financial products

The Global Financial Innovation Network (GFIN), which comprises 29 international organisations such as the UK Financial Conduct Authority (FCA) and the Australian Securities & Investments Commission (ASIC), starts accepting applications from firms that would like to test innovative financial products, services or business models across several jurisdictions.

The Network, which is currently chaired by the FCA, was developed following the FCA’s earlier proposal to create a global sandbox. Via GFIN, international regulators and bodies have joined forces to launch a pilot for firms that wish to test innovative products and services across international markets. The pilot tests will provide a more efficient way for innovative firms to interact with regulators across the world, as they look to scale new ideas.

Firms wishing to participate in this pilot phase must meet the application requirements of all the jurisdictions in which they would like to test. For instance, a firm wishing to test in the UK, Australia and Hong Kong must independently meet the eligibility criteria, and/or other relevant standards, of the regulators in those jurisdictions.

Interested firms should note whether a particular regulator is the relevant authority for the proposed activity before applying to test in their jurisdiction.

Each regulator will decide whether a proposed test meets its individual screening criteria, areas of interest, and ability to support the activity. Each regulator will also make sure that appropriate safeguards for their jurisdiction are in place. Regulators are only responsible for tests in their jurisdictions and should consider the associated risks.

Pilot tests will run for a 6-month period, unless regulators agree to extend them. The FCA expects the pilots will run from the second quarter of 2019.

The FCA stresses that, because GFIN cannot override national legislation, a separate application is required to each regulator firms would like to test with. GFIN members will then coordinate with each other around the application.

The deadline for testing applications is February 28, 2019.

Let’s recall that, earlier this year, the European Supervisory Authorities (ESAs) published a joint report on innovation facilitators (regulatory sandboxes and innovation hubs). Regarding regulatory sandboxes, some authorities raised concerns about the possibility that propositions tested in a regulatory sandbox may be perceived by consumers and/or the market as ‘endorsed’ by the competent authority. This, in turn, may lead to: a. potential preferential access to financing and/or preferential market positioning; b. legal risk to the competent authority in the event that consumers were to suffer detriment as result of services provided in the course of sandbox participation.

In the UK, the FCA has been successfully running a regulatory sandbox. 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.