by GK Strategy 17th November, 2016

Regulatory Sandbox

To the rest of the world, the view of the UK is of a country in retreat. Embroiled in Brexit wrangling, the UK has little time to build on its history of being an open, entrepreneurial and innovative nation.

But if you look closer, particularly in the industries in which Britain has played a leading role in developing, the country is pushing ahead with cross border schemes with other countries which could give UK firms in those sectors a real advantage in a post Brexit world.

In finance, a traditional area of strength for the UK, watchdogs from around the world including the UK, US and Hong Kong, have recently announced a new alliance as part of plans to encourage the growth of fintech, allowing companies to trial new products in multiple countries at a time.

The UK’s Financial Conduct Authority unveiled the so-called Global Financial Innovation Network on earlier this month as part of plans to formalise a “global sandbox”, which it first floated in February. Sandboxes allow companies to test innovative products with temporary regulatory authorisation, reducing the time and cost of getting products to market, and making it easier for young companies to raise funding.

The UK was one of the first countries in the world to introduce a domestic fintech sandbox winning plaudits from the industry. But there are also questions of how regulators can keep on top of a rapidly changing sector and ensuring consumers are protected.

The FCA hopes the network will seek to provide a more efficient way for innovative firms to interact with regulators, helping them navigate between countries as they look to scale new ideas. It will also create a new framework for co-operation between financial services regulators on innovation related topics, sharing different experiences and approaches.

For fintech firms worried about financial passporting with Europe after Brexit, the ability to conduct trials in multiple jurisdictions simultaneously could soften the blow if they denied immediate access to European markets.

The objective is to go beyond the concept of the sandbox and for regulators to share policy ideas and make sure they are up-do-date with developments in areas such as artificial intelligence, Big Data and blockchain, the technology that underpins crypto assets.

Longer term, the FCA hopes that such trials could also inform regulatory authorities in potential areas of regulatory convergence and feed into the broader activity of global standard setting bodies.

Being nimble and able to respond to rapidly changing technology will be critical for UK fintech firms to survive Brexit. The FCA is currently consulting on how the global sandbox could work, making it a great time for fintech’s to shape their expansion into international markets.

One of the main advantages for the global sandbox could be reducing the time it takes to bring ideas to these markets and preventing their growth being stunted due to protracted negotiations with multiple regulators.

To find out more about how GK can assist your business navigate issues such as regulation and Brexit, email johnny@gkstrategy.com.

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