FCA looks back to the future

Just over 5 years Ago the UK's Financial Conduct Authority ("FCA") launched its "Innovate" programme to support firms developing the innovative products and services of the future. On 29 April FCA published a review of the programme to date.

The Innovate Programme

The Innovate project has broadened its scope considerably since its establishment. The project began with a small team focussed on providing regulatory support to firms with innovative business models. In 2016 the "Regulatory Sandbox" was launched to allow innovative products and services to be tested in the market with real consumers, on a controlled basis with regulatory oversight. 2016 also saw the launch of an Advice Unit to focus specifically on providing support to firms looking at innovations in investment advice, including Robo Advice (click here for a description of work in this area) and the Reg-Tech Initiative intended to encourage the development of technologies to help overcome regulatory challenges in financial services. 2018 and 2019 saw an international initiative (often called the Global Sandbox) designed to better help FinTechs to scale globally. This culminated in a series of cooperation agreements between FCA and regulators in key jurisdictions around the world (click here for our report on the the Global Sandbox).

FCA research conclusions

In its research report the FCA looks back and evaluates the Innovate programme. Whilst noting that this is "hard to measure" and that results will "play out over many years", the initial assessment is that the project has been a success.

Christopher Woolard, Executive Director of Strategy & Competition notes that FCA is seeing:

"...innovative firms getting to market quicker - groups of firms coming through Innovate are being authorised on average 40% faster than our standard authorisation timings...innovation at scale benefiting consumers -incumbent firms are responding to new challengers to improve their own offerings, and firms we support are bringing beneficial innovations to market......innovative firms accessing investment - firms we have supported are receiving significant levels of investment, signalling the value of the regulatory certainty we provide."

Future focus

Indications of areas for future focus include:

  • support with data protection requirements - the FCA are strengthening their relationship with the Information Commissioner's Office both independently and through work to establish the viability of a cross-sector Sandbox; and
  • a closer look at the FCA's RegTech activities. FCA intends to assess whether these have been effective to encourage the development of innovative products and services in specific sectors.

Other interesting Takeaways

A few other interesting nuggets emerged incidentally from the review.

Major institutions are now clearly becoming more engaged. Around half of all Sandbox tests have involved a partnership of some sort between a start-up and an incumbent. In addition, interest from large incumbents for their own projects is also growing.

Coverage and diversity remain concerns for FCA.

  • Only 26% of domestic applications to the Sandbox have been from firms based outside of London.
  • Comparatively, FCA have received very low numbers of sandbox applications from the Asset Management and Pensions and Retirement Income sectors, despite proactive attempts to engage with these sectors.
  • women submitted only 3% of applications to the Direct Support team in 2018 and female founder-led projects represented 3% of sandbox particpants.

Will the ladies of the North take up the challenge for the asset management sector..............?