FCA Report Examines Results of Digital Sandbox Pilot Initiative
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
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Michael Denton, PhD, PE
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.
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Previous ArticleSRB Issues Guidance on Liquidity and Funding in Resolution
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023