FCA teams up with other regulators to advance its idea of creating a global regulatory sandbox.

By Stuart Davis, Gabriel Lakeman, Sam Maxson, Brett Carr and Charlotte Collins

The FCA, along with several other financial services regulators, has launched a consultation on the operating framework for a Global Financial Innovation Network (GFIN). This is an evolution of the FCA’s proposal, mooted earlier this year, to create a global regulatory sandbox (see Latham’s related blog post).

The FCA reports that its proposal was received positively, with respondents keen to see greater regulatory coordination and cooperation at a global level. Therefore, the FCA sees merit in continuing to explore this idea. The FCA has revised the name of the project to the GFIN, to reflect the fact that the group will have a broader remit than first anticipated, with a global regulatory sandbox constituting only one component of the group’s activities.

At present, the FCA is working with 10 other organisations around the globe, including those in Australia, Bahrain, Canada, Guernsey, Hong Kong, Singapore, the UAE, and the US. This represents a good range of key jurisdictions working on FinTech initiatives. Notably absent are other European regulators, many of which remain sceptical about the sandbox concept and the idea of relaxing standards for innovative businesses. The paper notes that various stakeholders have asked to be kept informed of the group’s progress, and that the current group would welcome further participation from other regulators, so it is likely that if successful the group will grow in future.

GFIN’s Mission

The consultation asks for views on the GFIN’s proposed mission statement, and the GFIN’s proposed three main functions, which include:

  • Creating a network of regulators: a community of regulators and related organisations that promotes information and knowledge sharing on emerging innovation trends, their own local experimentation, tests and initiatives, and the provision of accessible contact information for businesses.
  • Joint policy work and regulatory trials: collaboration between regulators on key policy questions to inform regulators’ approaches, with a view to supporting the work of standard-setting bodies. This work could also include regulators collaborating on RegTech solutions.
  • Cross-border trials: supporting businesses in conducting trials across multiple jurisdictions to allow businesses to navigate multi-jurisdictional regulatory issues.

The GFIN also asks for views as to how it should prioritise its activities.

Harnessing the Network

The paper explains that GFIN members would share intelligence, highlight domestic work to each other, and discuss emerging trends. There would also be self-organised sub-groups looking at specific topics, and a steering group to oversee the network’s activities, chaired by one of the members.

According to the paper, the GFIN would seek to complement, and feed into, the work of international standard-setting bodies. The GFIN would not propose to make its own rules.

The GFIN would also seek to provide easily accessible information about relevant contacts at national regulators for businesses, including sign-posting the opportunities for support and on-going initiatives within members of the GFIN. This effort would allow businesses to reach out to overseas regulators and leverage the resources available more easily.

Joined-up Thinking

The paper acknowledges that divergent approaches across the globe can stifle innovation, and highlights that certain areas may require a common approach for solutions to be viable and interoperable. Examples include issues relating to anti-money laundering, counter-terrorist financing, payments, and cross-border verification of identity.

The consultation envisages that network members will collaborate on policy work where possible, with members opting in to activities as appropriate (recognising that the regulators involved will have varying areas of focus and different mandates). This collaboration could include cross-border trials, comparative market studies, and TechSprints (events that bring together participants from across and outside of financial services, to develop technology-based ideas or proof of concepts to address specific industry challenges).

While establishing fruitful collaboration might take some time, any steps towards coordination and regulatory convergence would be hugely beneficial for global businesses seeking to navigate regulatory requirements.

A Global Sandbox

The ability for firms to conduct cross-border trials would be an important step forward in helping bring new solutions to market. The paper highlights that such trials are an important way for regulators to learn about new products and services too, and how this learning could, in the longer term, lead to areas of regulatory convergence.

The paper proposes that businesses would be able to apply to enter a global sandbox before carrying out a cross-border trial. The sandbox could operate on either a cohort and topic-specific basis, or on a rolling basis. However, it is envisaged at present that the sandbox would not have a single set of entry criteria. Rather, the relevant regulator would set criteria for eligibility to test in their jurisdiction. Therefore, firms conducting a trial would be expected to meet all regulatory requirements in all relevant jurisdictions. The sandbox framework would not incorporate a “passporting” function allowing a firm authorised in one jurisdiction to carry out testing in other jurisdictions.

The paper also envisages that the sandbox would need to operate on an opt-in basis, to give regulators flexibility and discretion. This means that some members of the GFIN could choose not to participate in the sandbox initiative at all.

Consequently, businesses interested in cross-border testing should not anticipate a fully operative solution just yet. Hopefully these obstacles to creating a truly multi-jurisdictional approach will not undermine the initiative.

Next Steps

The paper requests feedback from stakeholders both within and beyond the jurisdictions participating in the GFIN by 14 October 2018. The paper explains that, over the next two months, there will be various engagement activities across the jurisdictions involved.

The FCA plans to review the feedback received and agree on next steps with the other participants in the autumn. Next steps will also include setting out a proposed timeline for launch of the GFIN.