Financial Services Regulation Committee
Wednesday 11th November 2026
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11:35
Baroness Noakes
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Baroness Noakes
To today's meeting, which is the fifth oral session as part of the committee's inquiry into regulatory sandboxes. I'd like to thank you, Mr. Moore, Mr. Henderson and Mr. Ringer for attending this evidence session. The session is open to the public and it's broadcast live and is subsequently accessible via the parliamentary website. Verbatim transcript will be taken of the evidence , which will also be put on the parliamentary website.
So could I ask you briefly to introduce yourselves for the record . And then we will move into questions. So start with Mr. Ringer.
So could I ask you briefly to introduce yourselves for the record . And then we will move into questions. So start with Mr. Ringer.
11:35
11:36
11:36
Speaker 2
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Speaker 2
Andrew Henderson I'm a partner in the international law firm of Goodwin Procter, based in London. Goodwin is headquartered in Boston with offices on the East Coast and West Coast, including a strong North California presence, as well as Europe and Asia. I have over 25 years experience as a financial services regulatory lawyer working in and around the city with a four year stint in the Middle East. In keeping with our firm's practice profile, a major part of my practice is advising both investors in and founders of technology enabled businesses, especially those in financial services.
11:36
Baroness Noakes
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Baroness Noakes
Excellent. So we're trying to explore the relevance of the pluses and the minuses of regulatory sandboxes in financial services and interaction with the private capital markets generally. Are they important, are they not important, and so on. So it would be helpful if we could start with your initial views. Shall we start with Mr. Henderson?
11:37
Speaker 2
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Speaker 2
Yes. As as an advisor, I think we we have found them useful. And there are two aspects to that. I think the first is that, practically speaking, they offer a useful environment not only for the entrance into the sandbox to test their technologies or products, but also to test their understanding of the regulatory system, which is important. And then more generally, there is a certain kudos if you will attach to the regulatory sandbox. And and often we've had clients who probably weren't natural candidates for the sandbox were sufficiently well developed, but they chose to go into the sandbox because they felt that would be a give them a commercial advantage, particularly where they're looking to, to raise funds for their business.
11:37
11:37
Lord Lilley
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Lord Lilley
They are hugely important and they have evolved a lot over the last decade or so since being introduced, and where different types of sandbox serve different purposes. If it is a particular firm that has got a product or service that is doesn't fit neatly within the existing regulation, then having a sandbox where you have the space and the kind of regulatory blessing to experiment and learn together, then that is good. If you are at the early stages of a new technology, then having a safe regulatory space where one can experiment and keep the regulator assured that you're heading in the right direction, and you can learn from the developments as you go.
That is also good. When technologies develop into a more or clearer form, not always maturely, but are reasonably advanced stage, then to be able to test what that means for a particular sector is also good. I think we've also seen more recently regulators themselves. I could see from them leaving the committee. You had the FCA here beforehand. So for regulators to be able to test their policy making and create a space where outside the normal boundaries, they can explore how they develop that policy, that also serves a purpose. So there are 3 or 4 quite distinct types of sandbox that have emerged.
All of them are useful. Primarily, our firms are, in the main, looking at how sandboxes help the companies into which they invest. But that last one, the regulatory sandbox where Pisces would be a good example of that is actually works at an industry level. But all together they have done well. They give the UK competitive advantage and they help us to stay at the forefront of innovative technology and innovative regulation.
That is also good. When technologies develop into a more or clearer form, not always maturely, but are reasonably advanced stage, then to be able to test what that means for a particular sector is also good. I think we've also seen more recently regulators themselves. I could see from them leaving the committee. You had the FCA here beforehand. So for regulators to be able to test their policy making and create a space where outside the normal boundaries, they can explore how they develop that policy, that also serves a purpose. So there are 3 or 4 quite distinct types of sandbox that have emerged.
All of them are useful. Primarily, our firms are, in the main, looking at how sandboxes help the companies into which they invest. But that last one, the regulatory sandbox where Pisces would be a good example of that is actually works at an industry level. But all together they have done well. They give the UK competitive advantage and they help us to stay at the forefront of innovative technology and innovative regulation.
11:40
11:40
Lord Lilley
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Lord Lilley
I think you've already heard from Andrew and you hear from Leo, who's I defer to his greater expertise and lived experience of this shortly. I think when you start out with a sandbox idea, particularly an innovative firm wanting to test what its product or service is going to look like, you may be offering that particular firm some advantage, but that assumes that the end of the process, you're going to have a successful outcome and that that will unlock the door and they'll get first mover advantage. I think right back in the day, that might have been an issue that gave preferential treatment.
It might still be an element of that again. Others will be better placed to to judge that, but with a more mature suite of sandboxes. I think that you've got people who put ideas through them or others who might not have the opportunity, but will observe, and they can take advantage of what the regulatory outcomes are. If those have opened things up, made the UK more innovative as a regulatory environment, that's good for everybody.
It might still be an element of that again. Others will be better placed to to judge that, but with a more mature suite of sandboxes. I think that you've got people who put ideas through them or others who might not have the opportunity, but will observe, and they can take advantage of what the regulatory outcomes are. If those have opened things up, made the UK more innovative as a regulatory environment, that's good for everybody.
11:41
11:41
Speaker 1
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Speaker 1
We've invested in about just shy of a dozen fintechs in the UK. So these are very, very early stage companies. It could be two co-founders with an idea, or it could be a small team at the very earliest stages of building a product, but almost always pre-authorisation. So they haven't yet been through the process. And I think building on the comments, which I'd endorse, maybe in the early days of the FCA sandbox, the regulatory sandbox, probably ten years ago now, but certainly when we began investing 20 1819, it was a cohort model. So firms would apply, I think, every six months be assessed and selected, and then a group around 20 or so would progress through a structured programme.
And I think as an investor, one of the big risks we're underwriting when we look at a company is, can this company get authorised? The technology might be there, the team might be compelling. There's a business model, but the FCA has a very privileged position of getting to decide who gets to trade in the market. And your default not allowed unless you're authorised if you're doing a regulated activity. So we are trying to assess if we fund a company for, say, two years, which is typical in the market, it can be less, but two years, can that company usually get through authorisation in that time frame?
And if they can't, it's it's quite a big challenge for them to raise further capital. So the sandbox , in its earliest incarnation, the cohort based model, was a signal to us that this company had had the wherewithal to, to be selected by the regulator to be diligent. And it was going to have some degree of interaction in those early stages versus a company. To your question about those that didn't get in, perhaps had they applied, had they been found sort of wanting in some way, is that a signal that their regulatory kind of maturity wasn't there?
So I think maybe, you know, six, seven, eight years ago, there was a potential for adverse selection for the companies that didn't get in the process, then changed. I can't remember exactly when to being open on a continual basis so that there was no longer a cohort model. And that meant that there was less of this sort of are you in it or not? I suppose the flip side of that is it then meant there was less of a positive signal for those that were in it, because there was less kudos and less of a sense of being in the next wave of companies that might be break out.
So I think and this is a challenge for for the regulator to balance, the more selective it is, the more of a signal it sends, but the more exclusionary potentially it is accused of being.
And I think as an investor, one of the big risks we're underwriting when we look at a company is, can this company get authorised? The technology might be there, the team might be compelling. There's a business model, but the FCA has a very privileged position of getting to decide who gets to trade in the market. And your default not allowed unless you're authorised if you're doing a regulated activity. So we are trying to assess if we fund a company for, say, two years, which is typical in the market, it can be less, but two years, can that company usually get through authorisation in that time frame?
And if they can't, it's it's quite a big challenge for them to raise further capital. So the sandbox , in its earliest incarnation, the cohort based model, was a signal to us that this company had had the wherewithal to, to be selected by the regulator to be diligent. And it was going to have some degree of interaction in those early stages versus a company. To your question about those that didn't get in, perhaps had they applied, had they been found sort of wanting in some way, is that a signal that their regulatory kind of maturity wasn't there?
So I think maybe, you know, six, seven, eight years ago, there was a potential for adverse selection for the companies that didn't get in the process, then changed. I can't remember exactly when to being open on a continual basis so that there was no longer a cohort model. And that meant that there was less of this sort of are you in it or not? I suppose the flip side of that is it then meant there was less of a positive signal for those that were in it, because there was less kudos and less of a sense of being in the next wave of companies that might be break out.
So I think and this is a challenge for for the regulator to balance, the more selective it is, the more of a signal it sends, but the more exclusionary potentially it is accused of being.
11:44
11:44
Lord Griffiths of Fforestfach
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Lord Griffiths of Fforestfach
Yes. Thank you very much, gentlemen. It was most interesting. I mean, the reason I say that is that we've had a group of. People giving evidence here from fintech companies who were very negative about sandboxes and that they saw them as part, if you like, of what is now the sort of financial establishment as opposed to supporting the more disruptive . And perhaps Mr. Moore's notion of maturity is something that they were thinking about. And they argued that was one of the aspects of the sandboxes these days, was how very expensive it was to apply and to, to enter the sandbox.
And that it's the expense. The funds are better spent simply preparing your materials for authorisation rather than spending it on this more exploratory thing. Now, I understand that the whole idea of the sandbox was to reduce the regulatory risk. Mr. Ringer referred to. Will they get authorisation? And also, of course, is an information service for the regulator themselves. But what about this observation that it's become really a haven for major companies who can afford. I mean, NatWest were mentioned several times as major companies that could afford to go into the sandbox as opposed to really serving the disruptors, which is what the sandbox idea was initially focused on.
Mr. ringer, I wonder if you could take that up.
And that it's the expense. The funds are better spent simply preparing your materials for authorisation rather than spending it on this more exploratory thing. Now, I understand that the whole idea of the sandbox was to reduce the regulatory risk. Mr. Ringer referred to. Will they get authorisation? And also, of course, is an information service for the regulator themselves. But what about this observation that it's become really a haven for major companies who can afford. I mean, NatWest were mentioned several times as major companies that could afford to go into the sandbox as opposed to really serving the disruptors, which is what the sandbox idea was initially focused on.
Mr. ringer, I wonder if you could take that up.
11:44
Speaker 1
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Speaker 1
Yeah, so I, I think you're I'd agree with most of that and what they said. So I, I fund disruptive new entrants, new small challenges without the resources. Typically, although they are raising reasonable sums of capital. So I think there's a there's a tension there between the idea they have no resources, but they have they have enough. I think the judgment is more one of. With the finite resources we have, and particularly the time, I think the time is is really. The crucial factor for most early stage companies is, is, is the investment in joining the sandbox worth it in terms of what the company will get in return, but what it could spend those resources doing otherwise, which could be just building a, as you say, building a normal, as it were, application.
And I think this goes back to one of the things that's been sort of plagued the sandbox over the years is what is it actually for specifically versus what the people think it's for in a sort of general sense of, you know, I think one of the things that's definitely been true is the sandbox has has given a sense of the FCA is pro-innovation, and that's been helpful around the world. And it's been a sort of general feeling. But when you drill down into it, there's a couple of things that a startup might find useful.
One is this does it give us a head start on being authorised? And I think actually that's always been slightly misunderstood. You can't go into the sandbox and do things that you would need a licence for otherwise, just because you're in the sandbox. Typically there can be waivers, but normally the FCA would say you still need to be authorised. And companies, I think, misunderstand that. The second one is because you may be unclear as to whether your technology complies with existing rules. And that for me actually probably is is either answered by advisers who can give you a sense of that than maybe the the kind of six months and the investment in that dialogue with the FCA, not in all cases, but in some cases.
And then there's the hope, I think, in some cases that you might know your technology is at the edge of the rules or in a grey area, and you want the regulator to either change the rules because you've thought of something new or flex or accommodate you in a different way. And I think that is the hardest bucket, if you like, of, of progress, because that's where I think the regulator is less minded to go. It's more about testing ideas and getting information than it is about a real willingness to actually change the law or change the rules.
So a startup is making a judgment about which of those 3 or 4 things might be valuable. And is it worth the time if if it is, then I think startups could, in theory, invest a lot of resources in pursuing the sandbox. But to be blunt about it, of the ten or so we funded, none of them have made the decision to actually go through the sandbox. We followed many of the companies that have and looked at many and discussed it with them, but none of them have made the judgment in in our experience, because that value trade off, as it were, hasn't quite fallen on the right side of the line.
Yeah.
And I think this goes back to one of the things that's been sort of plagued the sandbox over the years is what is it actually for specifically versus what the people think it's for in a sort of general sense of, you know, I think one of the things that's definitely been true is the sandbox has has given a sense of the FCA is pro-innovation, and that's been helpful around the world. And it's been a sort of general feeling. But when you drill down into it, there's a couple of things that a startup might find useful.
One is this does it give us a head start on being authorised? And I think actually that's always been slightly misunderstood. You can't go into the sandbox and do things that you would need a licence for otherwise, just because you're in the sandbox. Typically there can be waivers, but normally the FCA would say you still need to be authorised. And companies, I think, misunderstand that. The second one is because you may be unclear as to whether your technology complies with existing rules. And that for me actually probably is is either answered by advisers who can give you a sense of that than maybe the the kind of six months and the investment in that dialogue with the FCA, not in all cases, but in some cases.
And then there's the hope, I think, in some cases that you might know your technology is at the edge of the rules or in a grey area, and you want the regulator to either change the rules because you've thought of something new or flex or accommodate you in a different way. And I think that is the hardest bucket, if you like, of, of progress, because that's where I think the regulator is less minded to go. It's more about testing ideas and getting information than it is about a real willingness to actually change the law or change the rules.
So a startup is making a judgment about which of those 3 or 4 things might be valuable. And is it worth the time if if it is, then I think startups could, in theory, invest a lot of resources in pursuing the sandbox. But to be blunt about it, of the ten or so we funded, none of them have made the decision to actually go through the sandbox. We followed many of the companies that have and looked at many and discussed it with them, but none of them have made the judgment in in our experience, because that value trade off, as it were, hasn't quite fallen on the right side of the line.
Yeah.
11:44
11:44
11:44
Speaker 2
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Speaker 2
I would add to that, I think for certainly for those of our clients who are very confident in that proposition, particularly those that already had funding, the sense was, well, we feel good enough to go for a a full authorisation rather than go through with the training wheels of the sandbox. The other point also worth noting is that since the sandbox, the FCA itself has opened up other avenues for new starters. So if you think about the the smaller, innovative banks, for example, there are some new entrants that will really get good regulatory services outside of the sandbox.
And so that that has also been been a factor for people saying, actually, we can still get perhaps not quite the level of, of attention that you do in the sandbox. And arguably that's what people are paying for. But if you are, you know, if you acknowledge that you are new in the industry, you'll get a sympathetic ear from the FCA. They'll still expect you to adhere to their standards. But but I guess that that differentiation, the sandbox once offered has been , has been somewhat dissipated.
Yeah.
And so that that has also been been a factor for people saying, actually, we can still get perhaps not quite the level of, of attention that you do in the sandbox. And arguably that's what people are paying for. But if you are, you know, if you acknowledge that you are new in the industry, you'll get a sympathetic ear from the FCA. They'll still expect you to adhere to their standards. But but I guess that that differentiation, the sandbox once offered has been , has been somewhat dissipated.
Yeah.
