UK FCA Unveils Cohort 4 of Regulatory Sandbox; Over 40% Are Using Blockchain, DLT

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The UK’s Financial Conduct Authority (FCA) has unveiled the 29 companies composing the fourth cohort of its regulatory sandbox. More than 40% of them will be testing blockchain or distributed ledger technology (DLT) solutions, the financial regulator said on Tuesday.

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Six are using DLT to automate the issuance of debt or equity, and two are using DLT to support the provision of insurance.

“We have accepted a small number of firms that will be testing propositions relating to crypto assets. We are keen to explore whether, in a controlled environment, consumer benefits can be delivered while effectively managing the associated risks,” the FCA said.

Blockchain startups and solutions that made it into the UK FCA’s fourth cohort include BlockEx, a platform that facilitates the issuance and manages the lifecycle of regulated bonds using DLT, Capexmove, a DLT-based solution for issuing tokenized debt, Etherisc, a service that uses smart contracts on a blockchain platform to provide fully automated, decentralized flight delay insurance, and 20|30, a DLT-based platform that allows companies to raise capital.

20|30 will be testing its platform, which enables the primary issuance of equity tokens using the Ethereum blockchain. The test will be conducted using UK blockchain startup Nivaura’s integration with the London Stock Exchange Group’s Turquoise platform.

“We are delighted to be included in the latest cohort of the FCA’s regulatory sandbox,” said David Siegel, founder of 20|30. “This is a significant milestone for the 20|30 team. For the first time, our integration with the Turquoise platform will demonstrate a regulatory-compliant way for institutional investors to purchase equity tokens. We believe this is an important first step to building a new digital foundation for capital markets.”

The 20|30 platform aims to be the regulated entity licensed to on-board companies to issue equity tokens. It will be fully compliant with UK regulations and will provide all necessary checks on investors and issuers.

“The next step will be to offer secondary transfers. Then we can work our way up the ‘capital stack’ to reinvent private equity and, eventually, public markets,” said Tomer Sofinzon, co-founder of 20|30.

Besides blockchain and DLT, other solutions that applied for the fourth cohort are using technologies that include geo-location technology, Application Programming Interfaces (APIs) and artificial intelligence.

The 29 companies were chosen out of 69 applications. Applications came from a diverse range of firms operating across the financial services sector including in areas such as consumer credit, automated advice and insurance.

Tests will be conducted on a short-term and small-scale basis. The FCA will be working with each firm to agree testing parameters and build in appropriate consumer safeguards.

Christopher Woolard, executive director of strategy and competition at the FCA, said in a statement:

“I am pleased to say that this is the largest sandbox cohort to date with a record number of applicants meeting our eligibility criteria. Cohort 4 has seen a large increase in the number of firms testing wholesale propositions including firms that are aiming to increase the efficiency of the capital-raising process.

“Alongside these we can see significant use of DLT, some experimentation with crypto assets which will help inform our policy work and propositions aimed at helping lower income consumers.”