FCA's regulatory sandbox: Specialist lenders react

In its 2016-17 Business Plan, the regulator revealed that the initiative would give firms a safe space to test innovative products and services.

That news was greeted by Stephen Wasserman, Director of West One Loans, who said anything which allowed businesses to try things out without the immediate fear of failure or legislative wrongdoing could only be a good thing.

“Firms have historically been reluctant to even consider discussing ideas that may not fit current regulation, let alone taking them to market and risk a slap on the wrist or worse,” said Stephen.

“Giving lenders the safety net of a ‘sandbox’ to experiment in, not only affords them more space to be creative, but also increases the chances of the product or idea being more consumer friendly by the time it actually reaches the market.

“Regulation is all about ensuring consumers are as protected as possible and most likely to get the right outcome for their needs so a testing ground should help with this.”

Julian Cork, COO at Landbay, which has been working with the FCA to become fully authorised for the launch of the Innovative Finance Isa, said it would be interesting to observe the effect of the sandbox on market growth.

“It is certain that any support of innovation in financial services is a good thing,” Julian said.

“We have enjoyed collaborating with the FCA and are pleased that they are taking a thorough and meticulous attitude to regulation of the sector.

“We will certainly consider using the sandbox when launching new, innovative products in the future.”

Keith Aldridge, Managing Director at Amicus, said it was hard to say if the FCA had the right balance between regulation and innovation, but said the plan should be encouraged.

“Any initiative that the FCA introduces that endeavours to reduce the ‘fear factor’ that exists when innovative product providers are seeking to improve their offerings has to be encouraged,” Keith said.

“My experience over many years has been that many lenders in the mainstream and, more recently in the specialist sector, have not done enough before launch to discover if what they are promoting is what the market wants, and whilst the sandbox initiative will quite rightly focus on how compliant the proposal is, it should have other benefits that will help both client and provider.

“Amicus will be keeping a close eye on the progress of the initiative as it could have significant benefits if it delivers to its brief.”

Stephen concluded by saying the initiative showed the regulator was willing to work with the market to ensure regulation was fit for purpose.

“This is particularly important in the world of specialist finance, where we should be making it as easy as possible for brokers – and their clients – to engage in such activity,” Stephen said.

“One of the main reasons bridging has thrived is because it has devised solutions outside the box of mainstream finance.

“For example, our innovative funding model using a panel of expert investors means that complex deals that would otherwise stall are able to complete.

“The sandbox should only serve to enhance the pace of such innovation in our industry, going forward.”