FCA published a report on evaluation of the Digital Sandbox pilot among the financial services firms in UK. The report sets out lessons learned and other key findings from the pilot phase, including how the pilot accelerated the development of innovative products and solutions in financial services. In partnership with the City of London Corporation, FCA piloted the Digital Sandbox to provide support to innovative firms tackling challenges caused by the COVID-19 pandemic. Ninety-four organizations applied while twenty-eight were selected to take part in the eleven-week pilot, which ended in February 2021.
As part of the pilot, participants had access to a range of development tools, such as synthetic data assets for testing and developing proofs of concepts, an Application Programming Interface (API) marketplace, a coding environment, and access to expert mentors and observers. While it is too early to assess the long-term outcomes for participating firms, the ongoing evaluation and feedback from participants has indicated a range of benefits. These benefits include acceleration of product development, validation and improvement of artificial intelligence and machine learning models, refinement of business plans, and networking within the pilot ecosystem. The key lessons from the pilot include the following:
- There is significant industry demand, particularly from early-stage firms and startups, for a digital testing environment. Analysis and feedback indicated that access to data and the benefits of an ecosystem convened by the regulator were the biggest underserviced market needs.
- Access to the digital sandbox was successful in accelerating early stage proof of concept development and improving product design, to varying degrees.
- The synthetic data was the most valuable feature cited by participants while simultaneously the one with greatest potential for improvement.
- Future cohorts should have a narrower focus which would result in more sustained engagement from a closer-knit ecosystem, and fewer data assets being required to meet the use cases, resulting in greater depth and granularity for those produced.
- The application and approval process should be brought forward, and successful applicants onboarded earlier in the process. Participants should then be involved in the data generation process so that data could be tailored to match their development needs
- Participants would benefit from a more structured journey through the cohort, rather than the digital sandbox being a "self-service" platform. The expectations of expert mentors should also be clarified and formalized, to tackle inconsistent contributions.
Based on the feedback collected throughout the pilot and an independent evaluation and to support the Kalifa Review recommendation of a permanent digital testing environment, FCA and the City of London Corporation will:
- Run a second cohort of the digital sandbox in late 2021.
- Further iterate and improve the digital sandbox testing environment by incorporating the lessons learned from the initial pilot and making the suggested improvements to the platform.
- Expand on the use of the digital sandbox testing environment to highlight the opportunities and value it contributes to the financial services ecosystem.
- Focus the efforts of this second cohort around the theme of sustainability/climate change to support the green finance ambitions of UK, ahead of hosting the COP26 UN Climate Change Conference in November 2021.
- Explore, with industry and other stakeholders, viable sustainable operating models for a future, permanent version of the digital sandbox.
Keywords: Europe, EU, Banking, Reporting, Basel, CRR2, Reporting Framework 3.0, DPM, Taxonomy, IFR, COREP, FINREP, Investment Firms, FRTB, EBA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Previous ArticleEBA Publishes Erratum for Phase 2 Package of Reporting Framework 3.0
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),
The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances
The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.
The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.
The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.
The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.
The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.