Five years on from the start of its policy of helping 'FinTech' start-ups find their feet and three years on from the setting-up of its 'regulatory sandbox' to speed the process, how well has the British Financial Conduct Authority done?

The answer to this question lies in a report that the FCA has just published in which it gives itself a tentative pat on the back. Since the inception of 'Project Innovate,' it has supported nearly 700 firms of varying shapes and sizes - no mean feat.

The real reason for Project Innovate

At the time when the FCA set up Project Innovate, it proclaimed it as a way to "ensure that our regulatory regime supports the development of innovative products and services that can improve the lives of consumers." During that era Charlotte Hill, a partner and regulatory expert at the City law firm of Covington & Burling, told Compliance Matters that this was only half the reason, if that.

In April 2016 she said: "Now the issue that's coming up is financial technology. The FCA is trying desperately to keep up with events there, often unsuccessfully. Some of the firms that provide financial technology are not regulated; some, according to current rules, should not be regulated; the FCA wants to bring them all into the fold. Many firms have different ways of transferring payments. That's why the FCA has brought in Project Innovate, to...have a policy involvement."

Now, in this latest report, the FCA has admitted this: "Innovate supports firms with innovative business models to understand the regulatory considerations relevant to their developments [and] to better understand trends." It is also, rather ominously, promising to bother firms for even more knowledge and data: "We are going to broaden the information we collect from firms we support and expand how we formally monitor their progress over time."

The FCA's unmourned predecessor, the old Financial Services Authority, pretended to be "technologically neutral," especially in the anti-money-laundering field. It declared that it did not care how firms did their AML jobs as long as they did them well, while actually kicking up a fuss behind the scenes whenever it encountered a large firm that still relied on manual checkers. This was typical of the way in which that discredited regulator worked. Another reason why the UK's regulators washed their hands of involvement in IT was an inherent one: regulators the world over are incompetent at handling, evaluating and/or building databases. As John D Cassara, the famous AML investigator and compliance expert, put it: "regulators don't do databases."

The possible success of Project Innovate

How, then, has this once-reluctant regulator fared as an encourager and promoter of new IT? The report itself admits that its conclusions are not very clear, but the general picture is a positive one. It claims, for instance, that large firms that already have all the regulatory permission they need to operate nonetheless find it faster to develop products if they use the 'sandbox.'

Perhaps because of this, the march of FinTech seems no longer to be characterised solely by new start-ups threatening lumbering dinosauria with their disruptive technology. This still happens, of course, but more and more start-ups are receiving help from well-established financial institutions and more and more large institutions are developing their own FinTech indoors. To date, half of all 'sandbox tests' have involved a partnership between an incumbent and a start-up.

Most applications for help that the FCA receives are still from start-ups, but interest from large 'incumbents' is growing. They are buying up FinTech start-ups, setting up their own 'innovation labs' and doing other things to offer new FinTech products and services. This is a growing trend. The FCA lacks proof that this is due to its own efforts, but it is surely being modest.

The 'sandbox' has received 29 applications from such 'incumbents' - a favourite FCA word. This appears to be on an upward trend - only 5 large firms applied to join the first 'cohort' (group of firms) to exerience the 'sandbox,' while 9 applied to join cohort 5.

Moreover, 80% of firms that successfully tested their wares in the 'sandbox' are still in operation - a hearteningly large figure if true.