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Fintech Act. 14 Jun 2017

I participated in a 'regulatory sandbox'

The British fintech firm, Bud, was one of the companies the Financial Conduct Authority (FCA) invited to participate in the first 'regulatory sandbox'. Jamie Campbell shared his experience in the regulation seminar organized by BBVA Bancomer and the Inter-American Development Bank (IDB).

The United Kingdom is by far the fintech capital of Europe. The technological startup ecosystem is one of the most active in the world, with initiatives and entrepreneurs from across Europe. But the country is also one of the most open to examining the fintech phenomenon from a regulatory standpoint. That’s why no one was surprised when the United Kingdom was the first country to create a 'regulatory sandbox' (controlled testing environment).

Bud participated in the first round of the sandbox, which recently concluded. The startup offers integrated platforms (marketplaces) that allow banks to offer products and services to third parties, such as insurance, pensions, mortgages, etc. They currently work with some of the top financial institutions in the United Kingdom and received the “Innovation of the Year” award at the British Bankers Awards.

One of the directors, Jamie Campbell, explained the details of this experiment, which has become a mark of quality to offer their services. “The sandbox provides a testing ground to combine the pace of innovation with user protection (consumers) and I can say that it has been a mutual learning experience for us and for the regulator,” he said.

Jamie Campbell talking about startups and the first regulatory sandbox in UK.

The sandbox process involves a qualification and nomination phase. The FCA selects startups whose business model represents a “real innovation.” In this case, Campbell explains, it’s possible that the regulator may not understand how it works, so companies have to present a hypothesis and show them the application of technology. “We studied the regulations a lot to see how they could affect us,” he notes. The next stage is a trial phase. It is external, conducted by a company outside the regulator. This company conducts an analysis and verifies that the technology is secure and that data are always protected. Finally, the startup prepares a document and the FCA determines the viability of the business model. This allows the company to go from a startup with restrictions (1,000 users) to a completely regulated institution.

In terms of lessons learned, Campbell says, “The sandbox has not changed how the company operates. Now we understand how they regulate us and when we go to a customer (a bank, for example), we can sit down and we are familiar with the compliance barriers they have. For us and for small companies, regulation is an important hook to sell our products. There’s no need to be afraid of the regulator.”

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