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More firms looking to replicate FCA sandbox successes


Paul Golden
Published on:

Euromoney speaks to some of the FX-focused companies in the third cohort of the Financial Conduct Authority’s (FCA) regulatory sandbox hoping to match the progress achieved by many of their predecessors.

The FCA’s review of the first year of its live-market test facility indicates that around 90% of the firms that completed testing in the first cohort are continuing toward a wider market launch – a figure it expects to be replicated for the second group.

The regulator revealed that one in three of the first test group significantly pivoted their business model ahead of launch in the wider market and that more than 40% received investment during or after their sandbox tests.

The above findings will doubtless be welcomed by the latest test group to enter the sandbox, which include two remittance system developers: Chynge and Solidi.


Joe Tusin, Chynge

Chynge started out as a consumer-to-consumer money-changing app before pivoting into a regulatory compliance engine comprising artificial intelligence and machine learning to make cross-border payments safe from financial crimes, including money laundering, terrorism financing and fraud, explains CEO and founder Joe Tusin.

Migrant workers, for example, pay high fees to send money home, he observes.

“With the automation of regulatory compliance – which forms a large proportion of the fees – and digitizing money, we can drive down the price of sending money.”

The company is already licensed in Hong Kong and Singapore, and has applied for licences in other markets in Asia-Pacific. It is also participating in the second round of the Abu Dhabi Global Market (ADGM) regulatory laboratory test platform, a controlled environment for the development and testing of financial technology solutions.

Artificial intelligence

Chynge is using the FCA’s test facility to create a sandbox-to-sandbox payments corridor between the UK and Abu Dhabi, secured with artificial intelligence and machine learning at both ends. Tusin says the company is confident it will pass with flying colours.

“As we progress through the respective sandboxes, the feedback from both regulators will only serve to make our solution faster, cheaper and safer,” he adds.

“Our end-to-end solution is a cloud service and we have a published API [application programming interface] to complement both PSD2 [Payment Services Directive II) and open banking. The ultimate winner will be the consumer, who will be able to transfer money to other countries instantaneously and free of service fees.”

Jamie McNaught,

Solidi founder Jamie McNaught has been involved in the digital-currency space since reading in 2011 bitcoin ‘creator’ Satoshi Nakamoto’s white paper.

“My experience of technology and software in investment banks has been extremely negative – most investment banks have dreadful technology stacks, held together by legions of operations teams whose sole purpose is to fix mistakes and errors in databases before the clients notice,” he says.

By contrast, the distributed ledger technology presented in the bitcoin white paper was a system where software had to be correct or the output would simply be rejected by the network.

In 2013, McNaught started reading the rules and regulations about foreign-exchange platforms. The initial ambition was to build a full FX platform to compete with the overseas digital currency exchanges based in Slovenia and Russia.

“However, when talking to banks it quickly became apparent that they were not keen on other companies running exchanges and working in this space, and that a bank account was off the table,” he says.

“We pivoted to a peer-to-peer broker-based platform to get around the need for a bank account and for holding client funds, and launched Solidi in 2016.”

Complexity of technology

The objective is to build a market-leading money-management platform. McNaught explains that the company is starting in the FX space “because we know our blockchain technology will enable consumers to send money faster and cheaper than existing solutions”, but intends to extend the platform into current accounts, savings and loan products.

The application for a place in the FCA sandbox reflected the complexity of the technology and the need for testing in a live environment.

“You can back-test scenarios with historical data, but until you actually participate in the market it is difficult to be 100% certain that you are properly testing,” says McNaught.

“We continuously refine our digital-currency exchange product in response to consumer feedback so we don’t see participation in the sandbox as being any different to our existing model of implement, test, deploy, feedback, update.”

Despite his previous experience of the regulatory advisement landscape throwing up many differing opinions about what a digital currency exchange should or should not apply to be in the UK, the founder of Solidi is confident that involvement with the FCA sandbox will improve his understanding of regulatory issues affecting the business.

“Our FCA case officer has helped us understand a number of nuances with the regulations that we would otherwise have been unaware of had we been applying for authorization without their support,” says McNaught.