fca sandbox

FCA Sandbox: What’s That?

Linkilaw Business Finance, Startup Advice & Tips

A sandbox is an ecosystem that supports entrepreneurship and provides resources necessary to turn entrepreneurial ideas into successful and sustainable ventures. These business incubators started in India, and now the Financial Conduct Authority (FCA) has introduced the UK’s first regulatory sandbox.

Project Innovate has the aim of providing innovators and entrepreneurs with some support to navigate the regulatory system and reduce barriers to innovation while upholding the same standards of regulation and consumer protection.

The FCA sandbox was developed out of more than 400 requests for support from startups and by already offering direct assistance to 300 thriving startups. The FCA sandbox will give startups a platform to test innovative products, services, business models, and delivery mechanisms in a live environment. The first cohort of the regulatory sandbox closed to applications on 8 July, with the FCA receiving 69 applications. Out of these 69, 24 applications met the sandbox eligibility criteria and were accepted to develop towards testing.

To ensure that your firm can be accepted into the sandbox, you should take these points into consideration.
Requirement to have a significant UK nexus: If you intend to be authorised or registered by the FCA, you’ll need to have a UK presence.

  • Securing partners: Before applying, you will need to secure contractual agreements with partners to maintain a stable relationship with contractors. The FCA will not be able to provide a partner if you need one.
  • Bank accounts: You must have secured, or be able to secure a bank account.
  • Authorisation: You’ll need to ensure that your business focus is one that is capable of being authorised and taking part in the sandbox. You can find the regulated activities here.

The FCA sandbox aims to help both authorised and unauthorised businesses.

Unauthorised Businesses

For firms which need to be authorised before testing their innovation in a live environment, the firm must be authorised or registered by the FCA. With restricted authorisation, the FCA has set up an authorisation process working closely with firms accepted into the sandbox to enable them to meet these requirements for authorisation. Any authorisation given by the FCA will be restricted to allow firms to test their ideas within the sandbox.

This makes it easier for firms to meet the FCA’s requirements and reduce the cost and time to get the test up and running. Just note, if you do require a restricted authorisation tool prior to being authorised, an application fee will apply.

When it comes to authorised businesses, the FCA can also offer help. The FCA sandbox is useful for firms looking for stability and certainty around relevant rules before testing an idea that might not fit into existing regulatory frameworks. This includes:

  • Individual guidance: The sandbox will set out how to interpret relevant rules in preparation for testing. In this safe space, if you comply with the guidance given, you can proceed with adhering to the rules that provide the framework for this guidance.
  • Waivers to the rules: If your test breaches any rules, the FCA could waive or modify it where it is not achieving its purpose. This wouldn’t prevent you from advancing further. Importantly, the FCA cannot waive national or international law.
  • Technology businesses: The FCA wants to support modernisation in business so technology businesses that want to provide services to FCA regulated firms can apply for the sandbox if they need clarity around applicable rules before testing.

Clearly, there are many benefits to applying to the sandbox, so make sure that your business is within the scope of what the FCA is looking for by ensuring that the idea is a genuine innovation, there is consumer benefit, there is the need for sandbox and the firm is ready for testing. If the FCA doesn’t feel that your firm is ready to test, your application is unlikely to be successful.

fca sandbox

To check whether your firm is ready, look at the following:

  • The stage of development: Can it be tested in a live environment and have you done any functional testing?
  • What are your testing objectives and plan for testing?
  • What steps need to be taken before testing? For example, securing a contract with a partner, getting a UK bank account, and finalising development of your service or product.

Applying For The FCA Sandbox

Applying for the FCA sandbox will give you a safe space to discover applicable regulations and develop your network, enabling your firm to grow sustainably and into inspiring businesses. Contact sandbox@fca.org.uk if you have any more questions and good luck in your business journey!

Deep commitment to innovation and promoting competition. The FCA sandbox can play a hugely important part in helping firms get new and exciting ideas to market more quickly.

Got any questions you need answering about the FCA sandbox? Then start with a free Startup Legal Session. Click below to find out more.

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