FCA expands regulatory sandbox with new cohort

The Financial Conduct Authority has expanded its regulatory sandbox, adding a number of RegTech’s to the initiative’s fourth cohort.

The FCA said it received 69 applications to cohort four, an increase on the previous year, with 29 being successful. Its regulatory sandbox allows firms to test innovative products, services or business models in a live market environment, while ensuring that appropriate protections are in place.

Christopher Woolard, executive director of strategy and competition at the FCA, said: “I am pleased to say that this is the largest sandbox cohort to date with a record number of applicants meeting our eligibility criteria. Cohort 4 has seen a large increase in the number of firms testing wholesale propositions including firms that are aiming to increase the efficiency of the capital-raising process.

“Alongside these we can see significant use of distributed ledger technology (DLT), some experimentation with cryptoassets which will help inform our policy work and propositions aimed at helping lower income consumers.”

Eight firms are operating in the wholesale sector, while five large firms including Natwest, are also involved. Natwest is working on a governance model based on DLT that enables organisations to work collaboratively on developing and running decentralised applications. The model codifies society rules in smart contracts on a blockchain creating a digital mutual.

Over 40% of companies accepted to cohort four are using distributed ledger technology, with six firms using it to automate the issuance of debt or equity. Geo-location technology, APIs and AI are also being tested.

A number of RegTech solutions have also successively made it into the latest cohort including Creativity Software. The RegTech supports regulated activities in the UK to achieve more secure customer authentication via mobile phone network based geolocation services. Its intention is to draw on geolocation technology to protect UK bank customers from fraud and crime.

The cohort also include Hub85, a fully-automated governance solution that enables financial institutions to monitor and understand how spreadsheets are used for regulated activities. Its software monitors and enforces compliance rules, identifies structural file errors and quantifies enterprise risks. Analytics captured can be used to identify and expedite the automation of operational tasks.

Other RegTechs testing their solutions in the sandbox include NorthRow and Veridu Labs. NorthRow enhances KYC, client onboarding and monitoring processes using account data to support identity verification and financial suitability. Veridu Labs is a privacy-driven KYC and AML solution backed by machine learning and network analyses to facilitate onboarding and access to business banking.

The fourth cohort 

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