Insights overview

Turning Sand into Silicon: A quantitative analysis of the FCA Regulatory Sandbox

The FCA Regulatory Sandbox has been running since 2015 with the first application window closing in July 2016. It has been widely praised as a… Read more

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The FCA Regulatory Sandbox has been running since 2015 with the first application window closing in July 2016. It has been widely praised as a step in the right direction to allow safe testing of new technologies and business models in a responsible way, giving new entrants to the market a solution to the chicken-egg problems of needing authorisation to justify significant investment, and needing significant investment to build a product to achieve regulatory authorisation.

We thought it would be insightful to take a look at the graduation paths of the early cohort members to see what authorisation statuses have been achieved, over what timeframes, and whether any other trends come out of the data.

Cohort 1 comprised 18 firms, three of which (CAB, HSBC and Lloyds Bank) were already established and authorised. The other 15 did not have authorisation prior to entering the sandbox. 13 of those 15, 87% have since achieved authorisation. 6 of these (40%) authorisations were granted during their time in the sandbox (ie. before the testing on 15 July 2017), and the other 7 were after the sandbox testing. Amongst those where authorisation was achieved during the sandbox period, the fastest was in 149 days for SETL, and the average over the 6 was 197 days. Amongst those that achieved any authorisation, the average period since the cohort applications closed was 570 days.

If we graph the number of days from the start of the cohort to authorisation being granted, we get an initial burst of authorisations between 150 and 200 days in, and then a fairly regular rate of authorisations over time. The testing of the cohort was 402 days after applications were due, so there was no particular jump at that point in time.

Applications for Cohort 2 were due on 19 January 2017, however the FCA did not publicly announce the testing date. This time, none of the 24 firms were already authorised, and 15 have since achieved FCA authorisation of some sort – 63% compared against the 87% rate we saw in cohort 1. Of the 15 firms that achieved authorisation, the pace of these authorisations also had a different profile to cohort 1: the fastest authorisation was for Money Dashboard, a mere 25 days after the Sandbox applications closed, and the average authorisation also much faster at 310 days.

It seems that in cohort 2, a burst of authorisation seeking firms achieved their goal within the first 300 days, and then we saw a much slower authorisation rate, or no authorisation at all. In terms of startup principles of iterating quickly, failing fast, pivoting as necessary to find product-market fit – this all seems an improvement, that a larger group of cohort members got their early authorisation.

If there is sufficient interest we intend to expand on this article in other updated, looking at other aspects of the data such as cohorts 3 and 4, the types of authorisation status, authorisation status in relation to funding, and similar observations. Do let us know what would be of interest, and we can put review the data.