FCA is inviting comments on the concept of a cross-sector sandbox. This Call for Input has been published to expand and deepen the discussions on whether a cross-sectoral sandbox or a similar mechanism is needed to ensure a consistent and efficient approach to emerging technologies. The Call for Input offers an overview of what a sandbox is and, using case studies, explains the opportunities and challenges a cross-sectoral sandbox could pose for firms and regulators. Comments are requested until August 30, 2019.
FCA has explained that emerging technologies, such as artificial intelligence and distributed ledger technology, are changing business models across all markets. Regulators are needed to ensure that they are adapting to these changing market conditions and can respond to support firms, protect consumers, and ensure that markets work well. FCA suggests that cross-cutting nature of these technologies and challenges suggests that a practical way of working between regulators should be established. There are multiple mechanisms or frameworks that could support a collaborative approach. Based on experience with the FCA sandbox, FCA suggests a cross-sector sandbox could be one such approach. It would provide a single-point-of-entry sandbox for firms to test innovative propositions with multiple UK regulators, in a controlled environment. Experience suggests that this could be a way to help innovation flourish while also ensuring traditional policy aims of ensuring consumer protection and promoting competition are maintained.
Opportunities and benefits of a cross-sector sandbox include helping to facilitate small-scale, controlled tests of innovative propositions and helping firms, especially those with complex business models or business models that span more than one sector, to navigate the requirements of different regulators. It could also provide shared lessons for regulators, as they would have the opportunity to understand how different sectors are responding to different technologies and emerging trends. This could help inform a coherent UK approach to cross-cutting innovations.
The Call for Input also discusses challenges with a cross-sector sandbox. This includes a lack of proven demand, a misunderstanding about the purpose of the sandbox, and firms not improving their own in-house knowledge. These are also the challenges FCA faced with its current sandbox and FCA believes that there are ways to mitigate them by creating eligibility criteria that require firms to show a need for testing to ensure that only those innovative ideas that would benefit from a sandbox test would be accepted. Another way to mitigate these challenges is by ensuring that firms do due diligence before any test by demonstrating that they understand the regulatory framework in which they operate. Additionally, there could also be a challenge around different aspects of the tests as regulators have different remits and, therefore, regulators may arrive at different conclusions when looking at the same test. However, having more discussions on a proposition can also help ensure that a test is more robust. Overall, FCA suggests that a cross-sector sandbox could be a good starting point for the type of practical collaboration that is needed.
Related Link: Call for Input (PDF)
Comment Due Date: August 30, 2019
Keywords: Europe, UK, Banking, Securities, Artificial Intelligence, Distributed Ledger Technology, Cross-Sector Sandbox, Fintech, Regtech, FCA
BCBS amended the guidelines on sound management of risks related to money laundering and financing of terrorism (ML/FT).
EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR).
FSB published a statement on the impact of COVID-19 pandemic on global benchmark transition.
IAIS published the list of Internationally Active Insurance Groups (IAIGs) publicly disclosed by group-wide supervisors.
FED has temporarily revised the reporting form on consolidated financial statements for holding companies (FR Y-9C; OMB No. 7100-0128).
EC launched a consultation on the review of the key elements of Solvency II Directive, with the comment period ending on October 21, 2020.
ECB launched a consultation on the guide that sets out supervisory approach to consolidation projects in the banking sector.
PRA published a letter that builds on the expectations set out in the supervisory statement (SS3/19) on enhancing banks' and insurers' approaches to managing the financial risks from climate change.
US Agencies (Farm Credit Administration, FDIC, FED, FHFA, and OCC) finalized changes to the swap margin rule to facilitate implementation of prudent risk management strategies at banks and other entities with significant swap activities.
IAIS published technical specifications, questionnaires, and templates for 2020 Insurance Capital Standard (ICS) and Aggregation Method data collections.