The United Kingdom’s Financial Conduct Authority has sped up plans to launch a blockchain-focused digital sandbox in response to the coronavirus pandemic.
The regulatory body invited innovative firms that are devising ways to tackle the challenges caused by COVID-19 to step up before applications open this summer.
Britain has now overtaken Italy to have the highest number of COVID-19 fatalities in Europe—and worldwide, it is second only to the United States.
“We are swiftly progressing plans so that we can provide support to innovative firms looking to tackle coronavirus-related challenges facing firms and consumers, the FCA said this week. “We will pilot these features and tools to support firms developing specific use cases, and will evaluate the effectiveness of the feature or tool through this pilot.”
The FCA noted that it had been exploring the prospect of a digital sandbox prior to the global health crisis. This would allow blockchain and cryptocurrency start-ups to market-test their wares without falling afoul of unclear regulations.
According to the regulator, its goal is to “enable greater collaboration to solve complex industry-wide problems.”
How sandboxes work
Many start-ups and companies developing blockchain platforms can struggle to bring them to market.
Existing regulations often fail to cater to their needs, and regulatory bodies can find it difficult to rewrite the rules. Part of the problem is that they struggle to keep up with technological innovation. Another issue is that it’s hard to know what legislative changes need to be made to accommodate these new solutions without putting them to the test in a real-world environment first.
Sandboxes aim to provide a halfway house that allows innovation to be experimented with. Projects that fail to conform with current standards surrounding data access and standardization are allowed to trial their wares to a small audience, and certain rules and limitations are relaxed.
The FCA has hinted that it plans to make this digital testing environment permanent—adding it could provide “significant value to financial services.”
Although the regulatory body has taken a dim view of cryptocurrencies in the past—warning consumers they are high risk and have no intrinsic value—it appears to be aware about the potential benefits that blockchain technology could bring.
It seems that the parameters of the sandbox are yet to be fully determined, too. The regulator has suggested that it could be used to provide access to high-quality data assets, help innovative firms share their learnings with others, and deliver “signposting to relevant regulations, informal steers or support.”
Let the testing commence
Further details on how companies can apply to be a part of the sandbox are going to be released soon, and the FCA has stressed that it plans to develop this pilot in close collaboration with the financial services sector.
As reported by Modern Consensus, interest in sandboxes has been growing in Europe for some time. Back in March, France’s Financial Markets Authority called for an EU-wide regulatory sandbox to be established for the security token industry.
At the time, the independent regulator has warned “major legal obstacles” are stopping these digital assets from being exchanged freely on the continent.
The FCA has operated a regulatory sandbox for some time. Although many of the companies accepted into this scheme are focused on fintech, very few were actually deploying blockchain technology to begin with, although their number is growing.