Toughening up fintech via the sandbox approach

At present, the UK has become a hub for investment in fintech, both within Europe and globally. The first half of 2018 saw over £12billion of investment in the sector, appearing to stand steadfast against Brexit based market fluctuations.

Despite the acquisition of WorldPay by Vantiv, a large portion of the last few months overall investment figure, there remains a significant diversity in other investment activity across the sector. Furthermore, these encouraging statistics, however, calls remain for the UK fintech sector to not become too complacent and, with the Brexit looming on the horizon, to make sure that the right type of investment and support remains in place for helping this burgeoning sector.

When we consider this support for the UK’s fintech sector, the novel regulatory Sandbox approach administered by the FCA has undoubtedly helped create an environment in which companies in this sector can thrive. With this sandbox approach aiming to allow “firms to test innovative products, services or business models in a live market environment, while ensuring that appropriate protections are in place” (FCA), the FCA has created a successful model that has gained recognition and replication across the globe.

‘Open & supportive regulation’

Last month, having taken on its fourth cohort of 29 firms, the UK’s sandbox approach is a lasting testament to open and supportive regulation. It would appear, however, that in addition to the short-term benefits of this new concept, the sandbox concept can be seen as creating a sense of greater resilience for the UK’s fintech sector.

Three examples of this ‘I’ identify are in terms of:

1.    International collaboration: despite fears of isolation in terms of the UK’s technology sector, the sandbox approach is welcoming and creating a suitable framework in order to foster international collaborations across the globe, which allows easier cross-border interactions, testing and development. Through this approach, it allows seeds to be sown for an international fintech sector that anchors itself to the UK whilst drawing on global, inter-disciplinary talent.

2.    Building capacity for change: within the financial sector, adjusting digital services to changes in the market has become crucial (e.g. debt management). Although relatively early on in its deployment, the FCA’s Sandbox approach appears to be suitably building in this capacity for change by fostering information exchange and collaboration to enable swift action on supply and demand shifts in this sector.

3.   Data protection: with the development and evolution of GDPR, the sandbox approach enables firms to be on the cutting edge of data protection. This prominent position enables the sector to lead from the front within the UK and act as a point of reference for good practice across the globe.

‘Significant investment figures’

The UK’s sandbox regulation concept has already drawn significant praise from governments and companies both within, and outside of its remit. In addition, the significant investment figures in the UK’s fintech sector may evidence the successes of this approach.

As well as these immediately visible benefits, it would appear that this framework for regulation has helped mould a sector that is not only able to adapt to current economic and political shifts but has also built in an aspect of resilience for larger changes still to happen. By developing a supportive regulation that benefits both businesses and consumers, the UK is able to strengthen a sector that may be crucial in the nation’s long-term economic plans.

Written by Melissa Blackmore, Client Director at Godel Technologies Europe

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