by Andria Papageorgiou

COMPLIANCE, News, REGULATORYJune 12, 20240 comments

A practical guide on CySEC Regulatory Sandbox

The Cyprus Securities and Exchange Commission (CySEC) has taken a significant leap forward with the launch of its Regulatory Sandbox. This initiative builds upon CySEC’s ongoing dialogue with market participants and experts since the inception of the Innovation Hub. The Regulatory Sandbox aims to strike a balance between fostering technological innovation, ensuring investor protection, and maintaining market integrity.

Overview & Objectives

CySEC’s Regulatory Sandbox is designed to provide a controlled testing environment where both regulated and unregulated firms can trial their technologically innovative solutions. The primary objectives are to build a transparent channel of cooperation between entities developing tech-based solutions in the financial services sector and to ensure that the regulatory landscape evolves with technological advancements. This initiative is poised to enhance CySEC’s understanding of innovative technologies and facilitate continuous regulatory adaptation to new market developments.

Why Join the CySEC Regulatory Sandbox?

Participation in the Sandbox offers an unparalleled opportunity for firms to test their innovative products and services on a small scale within a controlled environment. Under CySEC’s close monitoring and guidance, participants will receive constructive feedback on how the regulatory framework applies to their innovations. This guidance can prove invaluable in refining products to meet regulatory standards and achieving successful market entry.

Eligibility Criteria

The CySEC Regulatory Sandbox is open to regulated and unregulated entities engaging in financial innovation through technology. To participate, unregulated entities must:

• Obtain prior CySEC authorization for the regulated services they intend to engage in.
• Test innovative solutions solely within their corporate group or use any other exemption provided under the applicable framework.
• Perform demo services.
• Enter into a collaboration agreement with a CySEC-regulated entity.

It is important to note that the Sandbox is not a space for “light touch” regulation. Any unregulated entities providing regulated services must secure CySEC authorization before participating.

Additionally, applicants must ensure their proposed innovative solution:

• Directly or indirectly facilitates activities within CySEC’s supervisory scope.
• Introduces authentic innovation in terms of product, service, or business model.
• Is ready for testing in a production environment.
• Benefits the financial services industry.

The Four Phases of the Sandbox

1. Application Phase: Interested firms must complete and submit the application form available on CySEC’s website. CySEC will assess applications based on the eligibility criteria and inform applicants of the results within 6-8 weeks.
2. Preparation Phase: Successful applicants will collaborate with CySEC to agree on specific testing parameters, which will be documented in a testing agreement. A dedicated case officer will be assigned to guide the participant through the testing phase, with a communication and reporting plan established.
3. Testing Phase: Lasting typically six months, this phase allows participants to conduct small-scale testing of their innovative solutions within a controlled environment. CySEC will monitor progress and compliance through interim reports submitted by participants.
4. Evaluation/Exit Phase: After testing, participants must prepare a comprehensive exit report analyzing the test’s milestones and key performance indicators. These reports, which reflect participants’ views on the testing process, will be used by CySEC for internal assessment and feedback.

Conclusion

The CySEC Regulatory Sandbox represents a significant advancement in fostering financial innovation while ensuring regulatory compliance and market integrity. By providing a structured and supportive environment, CySEC is enabling firms to develop and refine innovative financial solutions that can meet the challenges of tomorrow’s financial landscape.

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Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any matter. Andria Papageorgiou Law Firm is not responsible for any actions (or lack thereof) taken as a result of relying on or in any way using information contained in this article and in no event shall be liable for any damages resulting from reliance on or use of this information.