On Tuesday, 22 November, Innovate Finance hosted a design session on the key features, value proposition and governance model of an Industry Sandbox. The session was hosted by Innovate Finance member Infosys.
The workshop brought together 45 representatives from key stakeholder groups for this project: FinTech startups, financial institutions from banking, asset management and insurance, technology providers, data vendors, professional services firms, industry bodies and representatives from the FCA Project Innovate and RegTech teams, and HM Treasury.
This session provided key input into the industry-wide consultation we were asked to chair by the FCA earlier this year.
A focal point of the discussion was the value proposition of an Industry Sandbox, particularly against the background of existing company-specific sandbox environments. During the course of the day, consensus emerged around the following five aspects:
- An Industry Sandbox can be a space for collaboration — where innovative solutions can be co-created and tested on assets, be they datasets, scalability tests or simulated production environments, provided by a wide range of cross-disciplinary actors.
- An Industry Sandbox can be a space for knowledge sharing, both across the FinTech industry and between industry and the regulator.
- An Industry Sandbox can support the resolution of shared industry problems, particularly ones driven by upcoming regulatory change such as GDPR or PSD2 — these will be the kind of thorny issues where the industry as a whole will find efficiencies in co-developing solutions, particularly with the participation of the regulator in the process- we called them “wicked problems”.
- An Industry Sandbox can support the FCA in its objective to improve market competition, as well as keeping pace with the evolution of FinTech technologies and products.
- An Industry Sandbox can expedite the route to market of new ideas by providing a single point of validation of proofs of concept.
Based on the consensus of the potential role of an Industry Sandbox, a number of core design and governance principles of the solution emerged, as did a framework for identifying “wicked problems” as potential starting points for a Sandbox Minimum Viable Product.
Crucially, the Sandbox needs to create a marketplace where product developers (users) and providers of various testing assets (suppliers) can opt to join in. Participation should be open to the full spectrum of the FinTech ecosystem and it should be voluntarily, allowing the different suppliers to determine ways of accessing to their assets.
In addition to a basic providence validation, Sandbox access might be tiered, with suppliers adding on eligibility criteria in order to provide access to more sensitive datasets or systems.
The make up of the two groups — the users and the suppliers — is fluid in that any institution should be able to both create solutions together and give access to, for example, a selection of datasets. The Sandbox may give options for users to choose whether their prototypes are publicly visible or private.
A number of design features that can be developed as the Sandbox evolves were identified. For example, the Sandbox can be equipped with analytics of how the various assets are being used, by whom and how frequently — giving the suppliers a value added service. Other “future features” can be AI navigation tools or user ratings for top APIs.
A number of key points were raised in discussion on governance and funding, such as the need for an Industry Sandbox to resource a secretariat function and develop a basic virtual platform (or repurpose some of the existing solutions). The handing of data security, even if the Sandbox does not itself store any data, managing data access rights, protecting IP, and the auditability of usage are key.
These are all issues Innovate Finance will develop and include in the first draft of an Industry Sandbox Blueprint. We will, in turn, seek wide industry feedback on this Blueprint in Q1 2017.
As this is a consultation process, feedback from the FinTech community is the only driver of the final recommendations we will issue and community engagement is key to ensure each interested stakeholder can influence the final outcome.