Christopher Woolard

Project Innovate: a regulatory strategy to support innovation

Why is innovation important, and why does a regulator need to get involved?

These questions were addressed in a presentation by Chris Woolard, Director of Strategy and Competition at the Financial Conduct Authority (FCA).

He explained that the FCA has a statutory duty to promote competition and that innovation helps bring new products and services to the market.

However, regulatory systems can favour existing companies that know how the system works and new entrants often need help to navigate the complex rules.

In 2014, the FCA created ‘Project Innovate’ to encourage innovative companies of all sizes to bring forward new ideas. As part of the project, the FCA gives an ‘informal steer’ around a company’s business plan, and also helps it understand the regulatory environment it is operating in. If a firm is genuinely innovating in the interests of consumers, but does not fit the established rulebook, the FCA considers how the rules might be amended to allow that company to enter the market.

Mr Woolard explained that, because innovation can be daunting, even for established firms, a ‘regulatory sandbox’ had recently become part of Project Innovate.

The sandbox offers a ‘safe space’, in which companies can be fully authorised and subject to FCA rules and protections for up to six months. They can conduct a trial, with a limited number of participants, to assess whether their product might work in the real world.

In return, companies agree to take part in research with the FCA, helping it to understand how the new technology works. There is also a pre-agreed plan for dealing with the situation if anything goes wrong.

Three cohorts of companies – about 100 firms in total – have been through the sandbox process, he said, and the benefits are clear: new companies are entering the market and the FCA has learned a great deal about the technologies that will dominate the market.

The sandbox offers a ‘safe space’, in which companies can be fully authorised and subject to FCA rules and protections for up to six months. They can conduct a trial, with a limited number of participants, to assess whether their product might work in the real world.

However, it is hard work, he said – innovative companies, by definition, come with the most risk. There is also a reputational risk for the FCA as the regulator in engaging with innovation. But, if it does not engage, it runs the risk that emerging technologies might remain outside the regulatory environment, or of not understanding how these new technologies work.

In conclusion, he said that, if a regulator is interested in innovation, it has to commit to it.