Crypto glossary
Regulatory sandbox
A regulatory sandbox is a supervised scheme letting fintech and crypto firms test products with real customers under tailored rules for a limited time.
The idea, launched by the UK's Financial Conduct Authority in 2016, has been copied by dozens of regulators. A firm applies with a specific project, agrees on limits such as the number of customers, transaction sizes and safeguards, and runs it under close supervision. Regulators learn how the technology works, and firms get a path to full authorisation without breaking the law in the meantime.
Several sandboxes have hosted crypto projects, from tokenised securities and stablecoin payments to blockchain settlement. In the EU, the DLT Pilot Regime works as a legal sandbox for trading and settling tokenised securities, and the European Blockchain Sandbox runs regulatory dialogues with projects across member states. Spain set up its own financial sandbox by law in 2020, run with the Bank of Spain, the CNMV and the insurance supervisor.
A sandbox is not a licence or an endorsement. Participation is usually limited in scope and time, and a firm that markets sandbox status as regulatory approval misleads its customers.
Example
A start-up testing tokenised bonds for small investors is admitted to a national sandbox, limited to a few hundred clients and a capped issuance, with the supervisor reviewing every step.
Related terms
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