Britain's finance watchdog is worried about 'wild west' fintech in some parts of the world

LONDON — A senior regulator at Britain’s Financial Conduct Authority (FCA) is concerned that other regulators around the world could be letting fintech startups operate under “wild west” standards of regulation that could leave customers out of pocket.

Christopher Woolard, the FCA’s director of strategy and competition, said in a speech earlier this week that that some regulators are using “sandboxes” to let fintech companies operate with little or no supervision.

The FCA set up a “sandbox” in 2015 to allow innovative companies to test new ideas under close supervision from the regulator to make sure they are not harmful. The ultimate aim is for successful ideas to become regulated.

Woolard said in a speech at the Innovate Finance Global Summit in London on Monday:

“But in a world where many governments and regulators have begun to show an interest in innovation there are challenges.

“As different jurisdictions begin to set up their own sandboxes, with different models and standards, some believe a ‘Wild West’ version could emerge.”

Speaking to Business Insider afterwards, Woolard said: “Our approach and indeed the approach of pretty much all the partners we have globally, has been to say a sandbox or some sort of innovation unit or whatever it might be is about getting innovative firms into the financial services market and doing that in a safe way that enhances the outcome for consumers rather than one that puts them at risk.

“What we’ve seen beginning to emerge is the idea of: wouldn’t it be great if we had sandboxes in certain parts of the world where there almost where no rules and there was not an attempt to say this is about getting firms to come into financial regulation.”

Christopher Woolard, FCA Director of Strategy and Competition.FCAChristopher Woolard, FCA Director of Strategy and Competition.

The FCA was the first global regulator to set up a sandbox, but Australia and Singapore have since established their own and other regulators around the world are also considering them.

Woolard wouldn’t name any specific countries or jurisdictions he was concerned about, saying only: “I think we’re seeing the emergence of those kinds of ideas all over the world and I wouldn’t want to say exactly where. I think there’s a number of people who are sort of thinking about things at the moment, beginning to put forward germs of ideas. And they need to think about them for themselves clearly.”

Woolard added: “I think this is something a number of regulators are worried about, it’s not something they want to see. And I think ultimately, it’s not in the long-term interests of those financial innovators either.

“Ultimately if firms are going to grow to scale they need to engage with the financial regulatory system as it exists today, they need to be prepared to do that in whatever testing environment they’re in, and ultimately consumers need to have confidence in the products and services coming to market if those products and services are going to be successful long-term.”

The FCA announced on Monday that it has accepted 31 businesses into the second cohort of its sandbox, up from 24 in the first cohort. The first sandbox is currently coming to an end and the FCA plans to publish a paper looking at how it went in a few weeks.

Woolard said: “I think we’ll see a range of outcomes coming from those firms [in the first cohort]. There are definitely firms who have tested a concept, it works, we want to do this on a permanent basis and we’ll apply to do that permanently.

“There are others for whom it’s been a test and it’s been, if you like, a successful test and it tells them they don’t want to take that forward. They will be a real mix of outcomes, just as there’s a real mix of applicants.”

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