The FCA has released the latest data on firms supported through its Regulatory Sandbox and Innovation Pathways services, which provides some insight on the direction of travel of innovation in the financial services sector. 

The FCA Innovation Hub supports a diverse range of firms (incumbents to fintech start-ups) allowing them to test innovative products or services in a live market through the Regulatory Sandbox or helping firms resolve regulatory questions through Innovation Pathways.  In total, the FCA has received over 2,400 applications and supported 867 firms, including 168 firms and products accepted for testing in the Regulatory Sandbox.

The data that the FCA has collected (from firms supported between 2014 and 2022) provides insights into the continually developing UK fintech market as well as into how new technology is being used in financial services.

By sectors

Historically, the FCA has accepted the biggest number of innovators in the retail banking and payments, investment and retail lending sectors.  This is across the services provided through the Innovation Hub. However, other notable sectors of innovators include wholesale financial markets, pensions and insurance.

By tech

Regarding Regulatory Sandbox firms, the top three types of technology being utilised were DLT and Blockchain (34%), advanced analytics (including machine learning) (18%) and Open Banking and API (17%).  Very similar findings were true of Innovation Pathways firms, albeit with a lesser focus on DLT and Blockchain and a greater focus on mobile app and web platforms. 

In terms of areas of focus of Regulatory Sandbox firms, a large percentage operated in the crypto and DeFi space (27%), with RegTech and infrastructure and process innovation taking second and third place (15% and 14% respectively).  ESG (13%) and robo-advice (10%) also made the list.  The equivalent for Innovation Pathways firms somewhat inverts with robo-advice taking top spot (29%), ESG second (14%), embedded finance third (10%) and infrastructure and process innovation and crypto and DeFi taking fourth and fifth (9% and 8% respectively).

Recent use cases of new technologies in the financial services industry in the Regulatory Sandbox include:

  • Open Banking technology to accelerate impact assessment in the ESG space and affordability assessment for underserved borrowers;
  • digital ID to enable smoother and more transparent housing transactions and access to financial services;
  • the development of software/app/platforms underpinned by analytics to improve ESG outcomes for consumers, investors and firms; and
  • blockchain to facilitate more efficient low-cost cross-border payments, security issuance and execution process.

Common innovations supported within Innovation Pathways include:

  • Open Banking use cases in robo-advice and data infrastructure areas;
  • blockchain use cases within the payment and wholesale markets sectors; and
  • process innovation, InsurTech and embedded finance propositions.

By location

Perhaps unsurprisingly, the majority of firms using both the Regulatory Sandbox and Innovation Pathways services were London-based (65% and 54%).  However, the data clearly shows that regional fintechs more widely across England account for a decent segment of the pools (20% and 33% respectively).   

The FCA also supports international firms wanting to expand into the UK through its innovation services with 11% of firms in the Regulatory Sandbox comprising international fintechs alongside 8% in Innovation Pathways.

Despite the trends above, the FCA makes clear that it welcomes applications from new areas that are not covered in the data.