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    FCA to Open Second Phase of Digital Sandbox for ESG Solutions

    August 11, 2021

    The Financial Conduct Authority (FCA) updated information on second phase of the Digital Sandbox with The City of London Corporation, to support testing and development of new products and services in the area of environmental, social, and governance (ESG) data and disclosure. Twenty-eight organizations had participated in the first digital sandbox pilot earlier this year, with participating teams presenting the solutions they had developed at a series of demonstration days. Based on the lessons learned from the first phase, for the second update, FCA has added information on eligibility criteria to assess applications to develop a solution in the digital sandbox. The application window for the sustainability cohort will open on September 06, 2021 while the sandbox will be open to successful participants in November and access to the testing environment will be open from January 2022. FCA expects to publish additional information in the coming weeks.

    The eligibility criteria specifies that the solution or product should be sufficiently different from what already exists in the market and should be beneficial for UK consumers or financial services firms by solving one of the ESG data and disclosure use cases. Additionally, the application should proposed a well-designed testing plan, detailing success criteria and future steps. The company does not need to be domiciled in the UK, but the solution needs to be intended for use in the UK market. The purpose of this sustainability cohort is to accelerate innovation and to address the specific market challenges on how technology can be used to 

    • enable transparency in disclosure and reporting on sustainability, especially on the characteristics of corporate assets and the profile of their supply chains (for example, open source and eco-friendly decentralized ledgers, centralized platforms)
    • automate the assurance of a listed issuer’s ESG data and validation of its ESG-labelled corporate bond issuance (for example, Internet of things, decentralized ledgers, centralized platforms, satellite imaging, artificial intelligence)
    • help consumers understand the ESG characteristics of the products and providers they engage with as well as provide visibility around alternatives aligned with their needs and preferences

    In terms of engagement and collaboration, FCA is seeking inputs from established market players, potential end-consumers of the products being developed, sustainability experts, investors, and others who may be able to provide mentorship, guidance, and expertise to the participating firms. FCA is also seeking guidance from data experts in identifying useful real data or creating synthetic data sets for the participants to test and train their models. The following features are the foundations of the Digital Sandbox pilots:

    • Access to synthetic and publicly available data assets to enable testing, training, and validation of prototype technology solutions
    • An application programming interface (API) marketplace where digital service providers list and provide access to services via APIs
    • An integrated development environment, in which applicants can develop and test their solution
    • A collaboration platform, to facilitate an ecosystem of key organizations that will provide support and input to digital sandbox participants, such as incumbents, academia, government bodies, venture capital, and charities
    • An observation deck to enable regulators and other interested parties to observe in-flight testing at a technical level, to inform policy thinking in a safeguarded environment


    Related Link: Notification


    Keywords: Europe, UK, Banking, Securities, Digital Sandbox, ESG, Reporting, Disclosures, Sustainable Finance, Regtech, FCA

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