Supporting FinTech Innovation in the Czech Republic

Annex D. Examples of regulatory sandboxes

Table A D.1. Austrian sandbox

No.	Area
1.	Institution(s) involved in the selection of participants and the operation of the regulatory sandbox	Financial Market Authority. The establishment and operation of the regulatory sandbox was achieved by means of legislative amendment in the underlying legal framework of the FMA to allow for the establishment and operation of the sandbox under its competence. Article 23a of the Financial Market Authority Act (FMABG; Finanzmarktaufsichtsbehördengesetz) entered into force on 01 September 2020. It provides the FMA with the necessary competence for and establishes the framework for the sandbox. The FMA is only allowed to act on the basis of this law, and not allowed to use free discretion to decide about a participant in the regulatory sandbox.
		FMA informs Federal Minister of Finance about applications. An advisory board (Regulatory Sandbox Beirat) established at the Federal Ministry of Finance for assessing the impact of sandbox business models, the rules of procedure of which shall be defined by the Federal Minister of Finance.
		The Regulatory Sandbox Beirat shall submit an opinion to the FMA about the existence of the economic interest pursuant to para. 2 no 2 lit. c from an overall national economic perspective and a regional perspective as well as to assess its readiness for the test phase (para. 2 no. 3) and market readiness (para. 2 no. 4). The FMA shall reach decisions on complete applications for admission to the sandbox taking the opinion into consideration.
		The members of the advisory board (Beirat) are as follows:
		1. a representative of the Federal Ministry of Finance as chairperson,
		2. a representative of the Federal Chancellery (Bundeskanzleramt),
		3. a representative of the FMA,
		4. a representative of the OeNB as well as
		5. up to six other members to be named by the Federal Minister of Finance, who are suitable based on their professional background or other relevant expert knowledge to contribute toward the expert review.
		The members of the advisory board shall perform their function on a voluntary basis. The affairs of the advisor board shall be managed by the Federal Ministry of Finance. All persons who are involved with an opinion shall be obliged to maintain confidentiality about all official, business and trade secrets that have come to their knowledge in the course of their performing this work.
2.	Application of the established operating principles by the entity under the regulatory sandbox, including:	The entity must observe all requirements that are prescribed under law as compulsory in a licensing procedure, such as technical suitability or the requirement that the position is the main occupation for at least one director of a payment service provider under the Payment Services Act 2018 (ZaDiG 2018; Zahlungsdienstegesetz 2018). No provisions are allowed to be suspended in the sandbox, or not to be applied at the discretion of the FMA. Room however remains for the application of proportionality within these legal requirements e.g. a Fit & Proper test for directors. The extent to which the senior management must be fit & proper depends on the scope and nature of the activity during the test phase.
	Potential capital requirements	The legal minimum requirements for granting a license under the respective supervisory act, must also be met for a license in the sandbox. For example, Article 16 para. 1 ZaDiG 2018 stipulates Common Equity Tier 1 of € 125,000.00 for operating a payment instrument business or a payment business. Furthermore, payment institutions are required pursuant to Article 17 para. 1 ZaDiG 2018 to have sufficient own funds at all times. This is dependent on different calculation methods in relation to the nature and scope of the business activity e.g. from the payment volume that flows through the payment institution. For a license, generally substantially higher own funds are required to be held than are compulsory in the provisions on initial capital. To what extent adequate own funds are specifically to be held, is to be evaluated on a case-by-case basis for the test phase. In drawing up the test parameters together with the entity, consideration is given for example whether limited operations with a low number of customers and transactions are initially aimed at. The specific own funds requirement is also based on this factor.
3.	Timeline of sandboxing stages	If all conditions for the application are fully met pursuant to Article 23a para. 2 FMABG and the opinion from the Advisory Board of the Regulatory Sandbox has been received, then the FMA is required to decide about the application within six months.
		Four stages https://www.fma.gv.at/en/fintech-point-of-contact-sandbox/fma-sandbox/how-it-works/ (in German)
4.	Publicity related to participation in sandbox	Advertising materials of sandbox participants shall not be allowed to create the impression that participation in the sandbox constitutes a benefit for customers. A transparent and non-misleading external appearance is to be observed throughout the entire procedure. It is not possible to advertise the business model using an FMA “seal of quality”. It would also be misleading to already offer the prospect of a licence, before one actually exists. The commitment of the sandbox means that both sides must be cautious in dealing with existing reputational risks. Ambiguities or exaggerated reporting are misplaced. The FMA will inform the public about the business model and the sandbox participant prior to the test starting. Operational or trade secrets must be protected.
5.	Application process	An application to be taken up into the sandbox is to be submitted to the FMA. The following conditions shall apply for admission to the sandbox:
		1. For the applicant’s sandbox business model, which is based on information and communication technology (ICT):
		a) an assessment as being an activity requiring a license, approval, authorisation or registration in accordance with one of the Federal Acts stated in Article 2 paras. 1 to 4 or pursuant to Regulation (EU) No. 1024/2013 must at least be considered logical or
		b) where a license, approval, authorisation or registration has been granted in accordance with one of the Federal Acts stated in Article 2 paras. 1 to 4, although the applicant may also apply together with an undertaking that is not subject to licensing, approval, authorisation or registration obligations in accordance with one of the Federal Acts stated in Article 2 paras. 1 to 4;
		2. The execution of the sandbox business model:
		a) requires an evaluation by the FMA in accordance with the Federal acts listed in Article 2 paras. 1 to 4, and b) is not subject to exclusive evaluation by the European Central Bank, the Single Resolution Board or a European Supervisory Authority pursuant to Article 21a para. 1 nos. 1 to 4 of this Federal Act, and
		c) is in the economic interests of an innovative financial centre, particularly because of the increased value of innovation, and
		d) is not likely to compromise financial stability or consumer protection;
		3. no general technical or legal impediments exist for the implementation of the business model in the sandbox (readiness for testing purposes), with the exception of the legal conductions to be clarified in the sandbox arising from the respective applicable Federal Acts listed in Article 2 paras. 1 to 4;
		4. it is to be expected that the market readiness of sandbox business models will be accelerated by their being admitted to the sandbox.
		5. It is expected that outstanding issues in relation to supervisory law will be able to be cleared up via the sandbox.
	Application process stages	The FMA may grant a restricted license, approval, authorisation, or registration in accordance with the respective applicable Federal Acts listed in Article 2 paras. 1 to 4 by means of an administrative decision for activities that do not fall under the competence of the European Central Bank, the Single Resolution Board or a European Supervisory Authority pursuant to Article 21a para. 1 nos. 1 to 4. The FMA, without prejudice to other legal provisions therein, may impose appropriate requirements, conditions and time limits.
		At the same time as a restricted licence, approval, authorisation or registration pursuant to para. 5 being granted, or in the case that such permission is not required without unnecessary delay following admission into the sandbox, the FMA, following a hearing of and in cooperation with the participant, shall define the conditions for a test phase including suitable test parameters and measurable targets for evaluating the implementation of the sandbox model.
	Eligibility criteria	To participate, further conditions apply (as per https://technologyquotient.freshfields.com/post/102gbaq/new-regulatory-sandbox-for-austria )
		Innovation – the sandbox business model must be based on information and communication technology. This requirement should be read broadly and in a technology-neutral way. Such innovations include solutions for the (digital or other) transfer, storage and processing of language, text, static and moving images, and data, and will generally cover any activities of fintechs.
		FMA relevance – the sandbox business model must fall within the FMA’s authority. For example, business models requiring no authorisation at all or an authorisation for which the FMA is not competent (eg a trade licence) are excluded. Also, if one of the European Central Bank, the Single Resolution Board or a European supervisory authority is the sole competent authority, the business model is not eligible.
		Public interest – the sandbox business model must (especially due to its innovative nature) be in the wider economic interest.
		Acceleration of market maturity – inclusion in the sandbox must accelerate the market maturity of the sandbox business model.
		Test readiness – apart from the regulatory questions to be clarified in the sandbox (see next point), there must be no fundamental technical or legal obstacles to the sandbox business model’s implementation.
		Clarification of open regulatory questions – participation in the sandbox must allow for the clarification of open regulatory questions. This excludes any business model that is already authorised by the FMA or on which the FMA has already issued opinions.
		No negative implications – the sandbox business model must not constitute a threat to financial market stability or consumer protection. This requirement was added to the version of the draft bill circulated last year to bring the Austrian sandbox rules further in to line with other countries.
	Application documents
	Details of acceptance procedure	The participant in the sandbox is an undertaking that the FMA has granted access to the sandbox by means of an administrative decision.
6.	Authorization process, including:	Criteria for admission to the sandbox have been determined and requirements finalised for how the test operates. For example, services that require a licence may never be allowed to be provided “on a test basis” without a licence. The sandbox opens up a new pathway towards a licence for FinTechs, but no “stripped down licence”. Supervisory requirements are only adapted within the scope of the principle of proportionality for supervision depending the business model, where supervisory laws permit this.
		In case of activities that are of limited-scale and scope, the FMA may grant a restricted license or authorisation, as already stipulated in the applicable legislation, by means of an administrative decision. However, such restricted license may be granted only for activities that do not fall under the competence of the European Central Bank, the Single Resolution Board or a European Supervisory Authority.
	List of documents and information required for the license application, conditions included in the license	The applicants shall submit to the FMA all necessary documents, especially business plans, for evaluation of the criteria [of application process] in nos. 1 and 2, provide it with information and to submit proof to it. The conditions pursuant to no. 2 lit. c being fulfilled is to be substantiated separately by the applicant. Furthermore, the applicant shall also submit a justified explanation, in which from their perspective readiness for testing purposes pursuant to no. 3 exists. The applicant must substantiate the requirement pursuant to no. 4 and specify the questions pursuant to no. 5 as specifically as possible.
		The FMA shall make the Federal Minister of Finance aware of applications pursuant to para. 2, that are complete except for the opinion that is required to be obtained.
		During participation, participants must provide information to the FMA upon request, submit documents, and provide access to the information and communications technology (ICT) underlying the business model. This obligation to cooperate exists where it is necessary for the assessment of the activity conducted by the participant under supervisory law, and irrespective of other obligations applicable for the participation based on the Federal Acts listed in Article 2 paras. 1 to 4.
7.	Resources
	Any financial assistance given to the FinTechs	No
	Fees related to application/participation in the sandbox	No fees arise during the process for admittance. Fees arise in the case of administrative decisions being issued – and are based upon the FMA’s standard charge rates, especially for an administrative decision granting a licence.
		The fees pursuant to Article 19 para. 10 for the granting of the licence, approval, authorisation and registration pursuant to para. 5 are to be borne by the entity itself. (article 10: For the authorisation of situations in accordance with fee items 44 and 45 and 50 to 59 of the Regulation on Federal Administration Fees 1983 (BVwAbgV – Bundesverwaltungsabgabenverordnung) as published in Federal Law Gazette No. 24/1983, in the version published in Federal Law Gazette II No. 146/2000, instead of federal administration fees, authorisation fees are to be paid to the FMA in accordance with the Regulation on Fees (Gebührenverordnung) to be issued by the FMA. This shall also apply to official acts pursuant to the fee items 1 to 5, provided that these official acts fall within the responsibility of the FMA. The fees may not exceed the average costs arising from the authorization or other official acts, taking a share of the fixed costs into account. The authorisation fees shall be assigned in the respective accounting group with the aim of reducing costs taking into account the subaccounting groups in the respective cost provisions of the laws listed in Article 2; more detailed rules shall be determined about its execution in the regulation to be issued pursuant to para. 7.)
	Resources on the part of the regulator	The government allocates a ring-fenced contribution of EUR 500 000 per financial year to finance the sandbox that is to be used by the FMA for the running costs of the sandbox. Directly attributable personnel and material expenses incurred by FMA within the scope of the assessment of the sandbox
		suitability pursuant to para. 2, the development of targets and test parameters pursuant to para. 6 and the reports to the Federal Minister of Finance pursuant to para. 7 shall be covered exclusively by this contribution by the Federal Government. The costs of the sandbox in this regard shall not be allocated to the accounting groups pursuant to Article 19 para. 1. Any immaterial shortfall of up to a maximum of 5% per FMA financial year of the ring-fenced amount according to the first sentence is excluded from this amount. Such an immaterial shortfall is to be broken down into the individual accounting groups using the ratio pursuant to Article 19 para. 2. Any surplus shall be allocated to a provision.
8.	Sandbox testing phase (including dedicated regulatory guidance)	a) Admission, b) Pre-Support, c) Sandbox Test and d) Evaluation Phase. During the admission phase, the applicant submits their application that is reviewed by the FMA and the Regulatory Sandbox Advisory Board (Beirat). During the presupport phase, eligible participants work closely with the FMA to decide upon test duration, the KPIs to be monitored, and discuss any potential restrictions / conditions attached to the license. In addition, during this phase a licensing procedure is conducted with an unlicensed or registered FinTech. In the case of an incumbent market participant a decision may potentially be required regarding an extension of the existing license.
		Once the financial market participant enters the Sandbox Test phase, the testing parameters and milestones that were agreed upon during the Pre-Support phase, will be regularly discussed in the management meetings with the FMA. During the final Evaluation step in the process, the outcomes of the test phase are evaluated, the business model exits the sandbox and is transferred to regular supervision.
9.	End of the sandbox tests/ Exit procedure	The entity may request to exit the sandbox at any time, and the evaluation and exit phase 4 of the sandbox is then initiated.
		Participation is to be limited to a period of a maximum of two years in accordance with the requirements of the sandbox business model.
		The FMA shall end sandbox participation either at the participant’s request or by its own initiative, where the conditions for participation cease to exist, where it is accepted that the desired purpose of participation in the sandbox may not be achieved, or after the end of two years.
10.	Rules of supervision of the entities conducting activity in the regulatory sandbox, including	The FMA shall report to the Federal Minister of Finance in writing on a quarterly basis about the developments within the sandbox. The Federal Minister of Finance shall also make these reports available to the advisory board established pursuant to para. 3. Moreover, the FMA shall at the request
		of the Federal Minister of Finance provide information about the sandbox and its participants in order to permit the evaluation of the overall national economic perspective or regional perspective of sandbox business models pursuant to para. 3
11.	Other aspects related to conducting business that are useful and reasonable for the proper implementation of the regulatory sandbox, including:
	Issues related to the legal form of the entity, owners	The Article 23a of FMABG does not specify required legal form of the entity.
	The period of operations carried out so far	There is no specific regulation in the frame of the sandbox.
	Participation in the compensation system	There is no specific regulation in the frame of the sandbox.
	Protection of intellectual property	There is no specific regulation in the frame of the sandbox.
	Requirements related to compliance with AML requirements	There is no specific regulation in the frame of the sandbox.
	Privacy protection	There is no specific regulation in the frame of the sandbox.
12.	Did the introduced solutions support the development of Fintech, including:
	How many firms participated? What was the approval rate?	Eight FinTechs have been admitted to the FMA Regulatory Sandbox so far. Five of these providers are targeting an authorisation as European Crowdfunding Service Providers in accordance with the EU Crowdfunding Regulation. The other three intend to conduct innovative financial services in relation to crypto assets and financial instruments in such a way that requires a license under the Securities Supervision Act 2018 or the Austrian Banking Act.1 To date, there is no information on the number of refused applicants.
	Whether they were encouraging for the innovative entities to enter the regulatory sandbox	FMA sandbox clearly communicates its design to attract applicants and set up realistic expectations on its operation.
	Have they ensured the safety of entities using the services of regulatory sandbox participants?	Services that require a license may never be allowed to be provided without a license. The sandbox maintains a standard level of consumer protection on the Austrian financial market.

Note:

1. FMA’s Regulatory Sandbox presents positive results: eight FinTechs already on their way to regulatory market maturity, one has already obtained a licence https://www.fma.gv.at/en/fmas-regulatory-sandbox-presents-positive-results-eight-fintechs-already-on-their-way-to-regulatory-market-maturity-one-has-already-obtained-a-licence/

Source: FMA; OECD research.

Table A D.2. Slovakian sandbox

No.	Area
1.	Institution(s) involved in the selection of participants and the operation of the sandbox	National Bank of Slovakia
2.	Application of the established operating principles by the entity under the regulatory sandbox, including:	The legislative requirements applicable to the entity from the existing regulations during the whole sandboxing period.
	conduct of business rules	There are not any sandbox specific conduct of business rules. Companies must adhere to existing Slovak regulation, which is based on European legislation.
	technical and operational requirements	The Operational Rules of the regulatory sandbox1 consider financial innovation to be a financial product, service, or business model which due to the innovative application of technology may considerably affect the functioning of the Slovak financial market.
	potential capital requirements	The sandbox requires participants to have a license to enter the testing phase. Sandbox does not waive or alter any capital requirements in place related to the licensing process.
3.	Timeline of sandbox stages	Application Assessment – up to 2 months Preparation – 6 months with a possibility to extend Testing – 6 months with a possibility to extend Exit - 1 month
4.	Publicity related to participation in sandbox	Within three working days after the start of the testing phase, the NBS will publish on its website the business name of the participant (if the participant is a service provider, also the business name of the supervised entity with its consent with participation in the sandbox), the date of entry of the participant into the regulatory sandbox, a brief description of the tested financial innovation. The information remains published also after the end of texting. Upon exit, it is specified that the testing period has ended.
5.	Application process
	Application process stages	Sandbox is not operated on a cohort basis, interested entities are encouraged to apply anytime. The application process is as follows2: The applicant delivers the application to the NBS (in paper or electronic form). The NBS will confirm the delivery and will assess its formal and content requirements. The NBS may call on the applicant to eliminate shortcomings or supplement the application within a reasonable time. The NBS will plan a meeting with the applicant to learn more detailed information regarding the applicant and the scheduled testing. The NBS will notify the applicant within two months from the date of delivery of the complete application whether it will allow him to enter into the regulatory sandbox; the time limit does not apply to the entity interested in cross-border testing. If the NBS notifies the applicant that it does not allow him to enter into the regulatory sandbox, the applicant may submit another application no earlier than 6 months from the date of delivery of this notification.
	Eligibility criteria	A participant in the regulatory sandbox may be:3 the supervised entity (an entity supervised by NBS pursuant to legislation4), the foreign supervised entity (an entity supervised by a foreign financial market supervisory authority in another Member State of the European Union), the applicant for authorisation (the applicant for authorisation a natural or legal person who has applied for authorisation or for other permission to perform activities or for registration pursuant to legislation5), the service provider (the service provider a third party who, based on an outsourcing agreement concluded with the supervised entity, applies a procedure, provides a service, or performs an activity or part thereof for which the supervised entity is authorised according to legislation5), the future supervised entity (the future supervised entity an entity performing activities that will be subject to legislation within the competence of the NBS, which was published in the Collection of Laws of the Slovak Republic or in the Official Journal of the European Union but has not yet entered into force or is not yet applicable). Further evaluation criteria6 Applicant is to be of a good repute, the subject of the consultations is the application of legislation within the competence of the NBS7 can demonstrate its readiness to participate in the regulatory sandbox and readiness of financial innovation for testing there is the need for testing it is innovative it has positive impacts on clients in the Slovak financial market and the absence of significant negative impacts on financial stability in the Slovak Republic. The NBS assesses the fulfillment of all these criteria according to the Methodology for the assessment of the criteria to enter into the regulatory sandbox.
	Application documents	A detailed set of information and documents required for the applicant shall attach to the application form, which is available in Annex 1 of the Operating Rules of the regulatory sandbox. The application consists of the following parts: Information about the applicant Information about financial innovation Preparatory phase and testing Declaration of honor Consent to the processing of personal data Familarisation with the Operating rules of the regulatory sandbox applicable from 1 January 2022
	Details of acceptance procedure	NBS recognizes possible limits of its capacity. If there are several applicants who meet the conditions for participation and the capacity of the sandbox is on its limits, the NBS may postpone the entry of the new participant accordingly.8 Upon receiving and evaluating application, successful applicant becomes participant of the Preparatory phase9, which consists of consultations aiming to: enable the participant to have consultations with the NBS, which should help the participant to adjust financial innovation in compliance with the legislation within the competence of the NBS to determine the course of the testing phase in the form of a testing plan. Following the consultations in the preparatory phase, the NBS will ask the participant to submit a draft testing plan within the specified time limit.10 The preparatory phase lasts a maximum of 6 months. At the request of the participant, the NBS may extend it accordingly.
6.	Authorization process, including:
	List of documents and information required for the license application, conditions included in the license	The list of documents varies considerably depending on kind of service provided, as there is number of licenses by NBS.
	Refusal and withdrawal of licenses for entities operating under a regulatory sandbox (non – EU countries - as long as the business activity is supervised both in the scope of the EU law and the law of non - EU country)	It is key characteristic of the sandbox, that if the participant is the applicant for authorisation, that participant must obtain the relevant authorisation during the preparatory phase. The participant may test financial innovation in the regulatory sandbox only after obtaining the relevant authorisation.11 If the participant is the applicant for authorisation, the licensing procedure takes place independently of the preparatory phase of the regulatory sandbox. If the participant does not obtain the relevant authorisation by the time of submission of the draft testing plan, the testing plan must stipulate that testing can only start after the authorisation has been granted. Termination of participation is sandbox is not directly connected to license of the entity.
7.	Resources
	Financial assistance given to the FinTechs	Not provided
	Fees related to application/participation in the sandbox	There is not a fee connected with participation in the sandbox. However, the entity must be licensed to enter testing stage, which carries considerable costs given needed legal expertise.
	Resources on the part of the regulator	There are not officers dedicated only to operation of sandbox, operation of sandbox is part of their agenda and officers are involved based on the expertise needed. Board of the sandbox consist of directors of relevant departments of NBS.
8.	Data pool or data infrastructure provided to the participants	The sandbox does not provide data functionalities at this point. The consultation prior establishment of the sandbox considered testing of innovations related to data in virtual sandbox12, but the respondents did not express strong demand for it.13
9.	Sandbox testing phase (including dedicated regulatory guidance)	The testing refers to the implementation of financial innovation on the Slovak financial market in accordance with the testing plan.14 The aim of the testing phase is the implementation of the tested financial innovation on the Slovak financial market in accordance with the testing plan.15 Testing of financial innovation does not affect the obligations imposed on the participant by legislation. Process of testing: The testing plan shall set a period for testing, which shall not exceed 6 months. The participant informs the NBS in advance of the intention to suspend or prematurely terminate the testing on its own initiative. Communication between participant and NBS: The participant shall continuously inform the NBS about the course of testing in accordance with the testing plan. Regardless of the testing plan, the participant immediately informs the NBS about serious problems, unexpected situations, or other facts that could have a significant impact on the testing process. The NBS may call on the participant to remedy the problem within the specified time limit. If the participant does not remedy the problem within the specified time limit, the NBS will prematurely terminate the participant’s participation in the regulatory sandbox. The NBS may request additional information from the participant on the course of testing at any time. At the participant's request, the NBS may provide consultations to the participant during the testing phase. Adherence to the testing plan: If the participant does not comply with the testing plan, the NBS will ask him for an explanation within the specified time limit and at the same time inform him that the NBS may prematurely terminate the participant's participation in the regulatory sandbox. If the participant does not provide an explanation and does not remedy the problem within the specified time limit, the NBS will prematurely terminate the participant’s participation in the regulatory sandbox. Changes of testing plan: The participant may request the NBS to change the testing plan. Until the NBS approves the change in the testing plan, the participant proceeds according to the originally approved testing plan. The NBS may send comments to the participant on the request to change the testing plan and set a time limit for the comments to be incorporated. If the participant does not incorporate NBS’ comments within the specified time limit or the NBS does not agree with the change of the testing plan, the NBS notifies the participant that its request has not been approved and that if it is still interested in continuing testing, it is obliged to comply with the approved testing plan. If the NBS approves the change, it will immediately notify the participant. Extension of testing period: In justified cases, the participant may request the NBS to extend the testing period by a maximum of 6 months.
10.	End of the sandbox tests / Exit procedure	Scheduled termination: Final report:16 Within one month after the end of the testing, the participant shall deliver to the NBS the final report stating in particular: a summary of the testing, an evaluation of whether the expected test results have been achieved, problems and unexpected situations that occurred during testing, whether the participant intends to continue offering financial innovation to clients upon the termination of its participation in the regulatory sandbox. Final meeting17: Within one month from the delivery of the final report, the NBS will organize a final meeting with the participant to discuss the final report and the course of the participant’s participation in the regulatory sandbox. The NBS may replace the final meeting with a written statement on the final report. Participation in the regulatory sandbox is terminated on the day of the final meeting or on the day of delivery of the NBS' written statement on the final report. Premature termination18: NBS may prematurely terminate the participant’s participation in the regulatory sandbox, in case that a participant: does not follow the instructions of the NBS, does not remedy identified shortcomings even after a request from the NBS. The participant in the regulatory sandbox is obliged to notify their clients that their participation in the regulatory sandbox is expiring and the provision of the product/service will no longer be subject to the previously communicated restrictions.
11.	Rules of supervision of the entities conducting activity in the regulatory sandbox, including carrying out a potential inspection	The sandbox does not provide for a waiver or alteration from the general inspection powers. In its consultation material envisioning possible functioning of Slovak sandbox prior its establishment, NBS wrote about necessity of proportional approach to sanctions for participants in the regulatory sandbox. It noted that given the close cooperation of the entity with NBS, the participant following all the instructions from NBS is not likely to violation of legal rules and thus the participant should not face any sanctions from NBS. However, it noted that if a participant in the regulatory sandbox nevertheless engages in sanctionable conduct, NBS will apply the relevant sanctions proportionately within the limits of legal regulations. In case that the legal rules allow it, NBS may initially refrain from imposing a penalty and give the participant the opportunity to remedy the deficiency.19 The topic was not revisited by NBS after setting up the sandbox, and there not have been participants breaking the rules to see case study of the reaction.
12.	Other aspects related to conducting business that are useful and reasonable for the proper implementation of the regulatory sandbox, including:
	issues related to the legal form of the entity, owners	Applicants can be any legal person. The rules imply that individual can apply. However only licensed company can enter testing phase.
	The period of operations carried out so far	There is not specific requirement.
	participation in the compensation system	This is not applicable.
	protection of intellectual property	The sandbox does not give participants any distinct intellectual property protection in relation to other entities.
	requirements related to compliance with AML requirements	The sandbox does not waive or alter general requirements.
	Privacy protection	The sandbox does not waive or alter general requirements.
13.	Did the introduced solutions support the development of Fintech, including:
	How many firms participated? What was the approval rate?	There is not information about any firm reaching the testing phase yet.
	whether they were encouraging for the innovative entities to enter the regulatory sandbox	NBS has network of contacts on relevant stakeholders thanks to its activities in Innovation hub. NBS widely disseminated the news of the sandbox among Slovak public, who also had a chance to contribute to the consultation regarding the design of the sandbox prior its establishment. There is no participant in testing phase yet and it has one participant so far, there is no information on refused applicants.
	Have they ensured the safety of entities using the services of regulatory sandbox participants?	Given that there is no waiver or alteration of general regulation, there is no risk arising from that. The safety is strengthened by intense exchange of knowledge among NBS and entity using the sandbox, which enables NBS to identify possible risks arising from the innovative model. The regulator and the participant maintain a close dialogue throughout the process, which ensures a robust knowledge exchange between the two parties regarding the regulatory process and the participant’s activity.

Notes:

1. Operating rules of the regulatory sandbox, Article 3, Letter e

2. Operating rules of the regulatory sandbox, Chapter V

3. Operating rules of the regulatory sandbox, Chapter II, Article 4

4. E. g. Act No. 747/2004 Coll, as amended

5. E. g. Act No. 310/1992 Coll., Home Savings Act, as amended, Act No. 483/2001 Coll., on Banks and on amendments and supplements to certain laws, as amended, Act No. 566/2001 Coll, on Securities and Investment Services (The Securities Act) and on amendments and supplements to certain laws, as amended, Act No. 43/2004 Coll, on the Old-Age Pension Saving Scheme and on amendments and supplements to certain laws, as amended, Act No. 650/2004 Coll., on the Supplementary Pension Scheme and on amendments to certain laws, as amended, Act No. 747/2004 Coll., as amended

6. Operating rules of the regulatory sandbox, Chapters III and IV

7. Consultations provide non-binding opinion by the NBS clarifying the application of legislation within the competence of the NBS, which is applicable to the participant and to its tested activities

8. Operating rules of the regulatory sandbox, Chapter II, Article 8

9. Operating rules of the regulatory sandbox, Chapter VI

10. Particular parts of testing plan are specified by Operating rules of the regulatory sandbox, Chapter VI, Article 21

11. Particular parts of testing plan are specified by Operating rules of the regulatory sandbox, Chapter VI, Articles 24 – 26

12. Regulatory sandbox consultation document, Chapter 1.5, Other types of sandbox

13. Vyhodnotenie konzultácie k regulačnému sandbox, page 7

14. OR Article 3, Letter f

15. OR Chapter VII

16. OR Chapter VIII, Article 38

17. OR Chapter VIII, Article 39

18. OR Chapter VIII, Article 41 – 43

19. regulatory sandbox | consultation document | June 2020, page 14.

Source: NBS; OECD research.

Table A D.3. UK sandbox

No.	Area
1.	Institution(s) involved in the selection of participants and the operation of the sandbox	The Financial Conduct Authority (FCA) -
2.	Application of the established operating principles by the entity under the regulatory sandbox, including:
	conduct of business rules	The conduct of business guidelines in the FCA regulatory sandbox are intended to make sure that businesses taking part in the sandbox are conducting themselves in a fair, open, and organised manner. These regulations aim to safeguard consumers from harm and encourage market competition. Through its Handbook of rules and guidance, the FCA develops the business behaviour guidelines for companies taking part in the regulatory sandbox. The Handbook defines the FCA's requirements for firms to comply with these laws and provides firms with information on how to do business. Depending on the nature of the business, specific standards that organisations must follow may include those relating to customer fairness, disclosure, and transparency.
		Firms are expected to have sufficient systems and controls in place to ensure compliance with conduct of business regulations in the FCA regulatory sandbox and to be able to provide the FCA with proof of this upon request. Additionally, businesses must have a procedure in place for managing complaints and submit any significant complaints to the FCA. Moreover, the FCA may mandate that companies submit to routine supervisory visits and submit to regular reports on their business operations. In order to safeguard consumers and foster competition, the FCA may also impose extra conduct of business criteria on companies taking part in the sandbox as it sees right.
	technical and operational requirements	The FCA continuously updates the operational requirements, and firms are expected to comply with the latest guidance and rules at all times.
	potential capital requirements	There is no need to be capitalised before applying for sandbox or before applying for authorisation. However, firms need to satisfy FCA Authorisations team that they can get sufficient funding, and will need to capitalise the firm before final authorization can be granted. Required capitalisation will vary depending on the actual business model. Firms may wish to start the process of getting a business bank account well in advance of applying for authorisation. (page 11)
3.	Timeline of sandbox stages	The sandbox typically consists of several stages, including a pre-application stage, an application stage, and a testing stage, during which the FCA works closely with the participating companies to ensure compliance with regulatory requirements and to mitigate any potential risks to consumers. The FCA has also published guidance on its website that provides information on how to apply to the sandbox and what to expect during the testing phase. The specifics of the sandbox stages change over time, as the FCA is constantly adapting and improving the program based on feedback and lessons learned.
4.	Publicity related to participation in sandbox	e.g. What is published regarding the participants of sandbox and when? Are there regular reports or ad hoc press releases?
		Is there limit on using participation as PR?
5.	Application process	https://www.fca.org.uk/publication/fca/fca-regulatory-sandbox-guide.pdf
	Application process stages	p.6, https://www.fca.org.uk/publication/fca/fca-regulatory-sandbox-guide.pdf
	Eligibility criteria	In scope - Innovation intended for UK market; relevant activity is regulated
		Genuine innovation - Desk research produces no comparable examples; innovation is clear step-in-change
		Consumer benefit – Innovation is likely to benefit consumers; potential risks have been assessed; innovation will make entry or compliance FCA rules easier
		Readiness – there is a well-developed testing plan
		Need for innovation support – There is a genuine need to test the innovation in the sandbox (innovation does not fit the regulatory framework, or full process would be too costly)
		https://www.fca.org.uk/publication/fca/fca-regulatory-sandbox-eligibility-criteria.pdf
	Application documents	https://www.fca.org.uk/publication/fca/regulatory-sandbox-application-form-guidance.pdf
		Assessment of process:
		Having an external industry panel of experts provide their opinion on what was genuinely innovative and commercially viable was valuable in making accurate assessments of which proposals were supported.
		The platform features worked well for the online application portal and enabled efficiency gains compared with other previous application systems used for FCA innovation services.
		The application process was not subject to the same level of scrutiny and rigour as Regulatory Sandbox applications. This is appropriate on the basis that digital sandbox participants represent a significantly lower risk of harm, given that tests are conducted. Source: page 25 https://www.fca.org.uk/publication/corporate/digital-sandbox-joint-report.pdf
6.	Resources
	Financial assistance given to the FinTechs
	Fees related to application/participation in the sandbox	There is no charge for applying for or being accepted into the sandbox, or for any of Innovate’s services. However, firms that need to be authorised or registered, including conducting their sandbox test, will need to pay the standard authorisation or registration fee. More information on fees can be found on their website. The fees for full authorisation are the same as the fees for restricted authorisation. (page 11 https://www.fca.org.uk/publication/fca/fca-regulatory-sandbox-guide.pdf)
	Resources on the part of the regulator
7.	Data pool or data infrastructure provided to the participants
		Access to synthetic data was identified as the most important feature by far, by most participants (92% ranked data or Juptyer as the highest expected use). However, the average ‘rating’ of the utility of the data was 5/10 (this also includes additional data sets outside of synthetic data).
		For most teams, data did not fully meet their needs. As noted in the use cases recommendations, the sheer breadth of the required data across 3 different domains meant that there was a trade-off between volume and quality.
		It is important to recognise that synthetic data is a nascent and enormously complex field. Even with world-leading expertise contributed by the Turing Institute, the Working Group was unable to create the required richness across so many data sets.
		Feedback also indicated that better data documentation was needed at the outset of the pilot to avoid resources being required to answer participants’ data questions. This documentation should:
		Provide clear descriptions of how the synthetic data was modelled, eg what typologies exist, in what ways is it representative of real data. Give an understanding of which data sets are linked to each other. Be published before teams apply. Teams had unclear data expectations going into the pilot while writing applications which contributed to the misalignment of expectations and teams having to pivot solutions.
		Many teams would have preferred full access to data outside of the platform, for example via S3 buckets. The IDE limited teams to a certain number of calls per day and they could not ingest data onto their own platform. Allowing this approach would also reduce the cost of computing ie the cloud credits required to be provided by the Working Group.
		However, ring fencing data assets behind the IDE enabled the monitoring of usage, prevented data leakage and ensured sustained engagement with the pilot. This contributed to the development of a supporting ecosystem for participants.
		Feedback from participants and observers (particularly financial institutions as potential customers of the solutions) indicated that synthetic data can only enable product validation if the synthetic data assets are commonly understood and recognised by industry - otherwise they are more limited to serving a role in PoC and product development. Industry participants can’t evaluate the effectiveness of potential solutions if the input is not understood at a technical level. Source: https://www.fca.org.uk/publication/corporate/digital-sandbox-joint-report.pdf

Source: FCA, OECD research.