Author(s): Aprajita Singh
Paper Details: Volume 3, Issue 4
Citation: IJLSSS 3(4) 56
Page No: 775 – 781
The article “Regulatory Sandboxes (Experimental Legal Regimes) For Digital Innovations In BRICS”[1] is a comprehensive exploration of the present legislation and legal framework pertaining to the regulatory sandboxes in the BRICS nations, defining the characteristics of national models, challenges, and future potential applications.
The article recognises that the development and use of new, competitive technologies is a key objective for today’s top nations, particularly the rapidly expanding BRICS countries. These nations are actively looking for solutions to a number of important questions, including how to best regulate business activities involving these ground-breaking inventions, which strategies can encourage businesses to invest in and develop digital technologies, and how to use these technologies to their fullest potential while lowering the risks of failure or injury. Therefore, it is essential to look for new tools for regulating digital technologies that can address both private and public interests.
A fine example of such a tool is a regulatory sandbox. By allowing companies to test their products in a safe and regulated setting, its deployment seeks to foster innovation. This groundbreaking concept was first implemented in the UK in 2016 and is currently being effectively embraced by a number of nations, including the USA, Singapore, Australia, the United Arab Emirates, and other EU members.
The term “regulatory sandbox” is derived from two different domains, each emphasising the idea’s primary objective of safe experimentation. In the technology sector, a “sandbox” refers to An insulated, protected virtual environment where new software projects or online products may be thoroughly evaluated without compromising the primary system . Separately, the term’s roots may be found in the pharmaceutical sector, where “clinical trials” are a mandatory and meticulously monitored in the testing phase for novel medications or medical devices in order to protect patients.
The paper recognises that, in business and finance, the primary goal of a regulatory sandbox is to strike a compromise between stringent financial regulations and the rapid expansion of creative businesses. It aims to completely safeguard customers while assisting the FinTech industry in growing without being constrained by onerous laws.
REGULATORY SANDBOXES IN BRICS COUNTRIES
The article reveals that majority of the BRICS countries—Brazil, Russia, India, China, and South Africa—still have evolving regulatory sandbox laws. China and Russia already have sandbox regimes in place, South Africa and Brazil don’t have any explicit laws or even draft legislation .Notably, the Brazilian government has recognised the necessity of such a legislation, something that South Africa does not currently recognise.
Each BRICS nation’s approach to regulatory sandboxes is examined in detail in this article which is outlined in brief below:-
- BRAZIL- Despite the absence of a legislative framework for regulatory sandboxes in the past, Brazilian authorities are actively attempting to promote innovation. A major move was the introduction in June 2019 of a new regulatory sandbox to test digital technologies, including blockchain.
- RUSSIA – In the Russian Federation, regulatory sandboxes were developed in two phases.
At the first stage of FinTech development, Russia launched regulatory sandboxes, under the Bank of Russia’s approved “Main Directions for the Development of Financial Technologies for 2018–2020.” The Bank of Russia will create a regulatory sandbox to test new financial technologies, goods, and services in accordance with the action plan (or “road map”) for carrying out the “Main Directions for the Development of Financial Technologies for 2018–2020.” The Bank of Russia established a regulatory sandbox in April 2018 to test cutting-edge financial services and technology that required modifications to current laws.
The second stage of Russia’s regulatory sandbox began with The Ministry of Economic Development drafted the Federal Law “On Experimental Legal Regimes for Digital Innovations,” which was issued in two versions in 2018—the most recent in July. The process for initiating, creating, implementing, overseeing, and assessing the efficacy of experimental legal regimes in the field of digital innovations is outlined in the most recent draft law, “on experimental legal regimes for Digital Innovations.”
The article enumerates the advantages of the draft federal law as :
- A notable feature of the Draft Federal Law on “Digital Innovations” is its universality; it is applicable to more than one industry. Other nations, such as the United Kingdom, the United Arab Emirates, and Australia, primarily employ sand boxes for Fin Tech(financial technology).However, sandboxes for digital innovation of all kinds, not only financial, are permitted by Russia’s proposed law. Russia’s strategy is therefore broader and more adaptable.
- The proposed bill effectively defines the main structure of Russia’s regulatory sandbox by outlining the key principles that will guide its operations. These include:- Transparency, Equality, Voluntary Participation, Limited Scope, Minimum Changes to Existing Laws , Follow the Constitution and International Laws ,Legality of Activities, Fairness Between Participants.
The article also points out some major drawbacks in the draft law which includes:- Complete authority for the Russian government to determine the extent of establishing regulatory sandboxes, Absence of Consumer Protection, The duration is very excessive as the sandbox can remain operational in Russia for a maximum of three years. The Extended periods may result in firms abusing or misusing the system, Customer consent is not mandatory, Vague Eligibility Conditions.
- INDIA- The Reserve Bank of India formed a specialized group to investigate FinTech, which then advised the creation of a controlled testing environment, or “regulatory sandbox.” This initiative aimed to enhance operational efficiency, manage potential risks, and foster new advantages for consumers. Consequently, in April 2019, the Reserve Bank of India introduced a draft framework outlining the foundational principles and goals for India’s approach to such a sandbox. In India, Draft Law specifies who is eligible to apply for access to the regulatory sandbox. Only FinTech companies that fulfil the government’s start-up eligibility requirements are permitted to take part. The sandbox is only open to certain cutting-edge goods and services which have been enumerated in the paper. India’s regulatory sandbox permits testing for up to 12 weeks, followed by a 4-week review, in contrast to the Russian model. Based on the test findings, the Reserve Bank of India subsequently determines if the product or service is viable and acceptable.
Before leaving or ending the regulatory sandbox, sandbox participants must make sure that any outstanding duties to the clients of the financial service under testing are met or resolved, according to the terms of the Draft legislation on consumer protection. Crucially, this implies that the entity’s obligation to its clients is unaffected by joining the regulatory sandbox. Customers must be informed of any dangers during testing and given suitable compensation, according to the draft law. These clauses significantly affect upholding the interests of consumers as well as those of the government and private sector.
- CHINA- China began developing its legal framework for regulatory sandboxes in 2016 and now has four active sandboxes. Which are namely – The Fintech supervisory sandbox (Fss), Securities and Futures Commission (SFC) Sandbox, InsurTech Sandbox, Block chain Sandbox.
The paper broadly outlines that China employs regulatory sandboxes as a means of striking a balance between risk and innovation. Every sandbox has rigorous admission and exit requirements and is sector-specific (banking, insurance, securities, block chain). All sandboxes adhere to the same concepts of risk management, customer protection, and regulatory preparedness. China’s strategic goal of developing an entirely innovation-driven economy is reflected in these initiatives.
- SOUTH AFRICA- Growing opposition to the use of regulatory sandboxes has caused South African officials to adopt a cautious approach to their implementation. Critics contend that regulatory sandboxes might be used as a covert way to get around consumer protection regulations in light of the growing worldwide worries about money laundering.
However, the paper recognizes that Sandboxes aren’t inherently a way to get around regulations, nevertheless, when used properly. This emphasises the necessity of intelligent, well-thought-out regulations to guarantee that sandboxes are utilised sensibly, balancing creativity with adherence to the law.
GLOBAL REGULATORY SANDBOX OR “SANDBOX FOR SANDBOXES”
The idea of regulatory sandboxes as an experimental legal system has gained international traction. The establishment of the global regulatory sandbox, also known as the “global financial innovation network” or “sandbox for sandboxes,” was announced by the UK’s Financial Conduct Authority in August 2018. The global regulatory sandbox would be availed by at least 12 nations. The new partnership made a commitment to cross-border financial technology experimentation.
The paper recognises that the global regulatory sandbox aims to:-
- Establish a network of regulators so that nations may exchange data and expertise on financial innovation.
- Promote joint policy work and regulatory experiments, in which regulators from many nations work together to develop policies and investigate novel technological solutions for regulation.
- Facilitate cross-border innovation testing by enabling enterprises to test their financial solutions for consumers and businesses abroad.
Global financial innovation network provides developing nations with: Assistance through regulatory collaboration to address common issues, training and information exchange to increase their employees’ capabilities, a worldwide forum for businesses to communicate with authorities, and opportunity to more quickly and efficiently market their cutting-edge goods abroad.
CONCLUSION
In conclusion, the paper emphasises how important regulatory sandboxes are for BRICS nations to manage risks and promote digital innovation. It identifies the various laws of these countries, their advantages and drawbacks. The paper identifies that implementing regulatory sandboxes is one potential solution to the issue of some digital technologies (like artificial intelligence, for instance) not being adequately regulated by law in the member countries of the BRICS. However, each of the participating nations must work in detail and in concert to establish this process.
The paper provides several insightful recommendations to address the challenges associated with the implementation of regulatory sandboxes in BRICS countries. Which include:-
- The establishment and maintenance of regulatory sandboxes requires collaboration across BRICS members.
- Establishing fundamental guidelines and policies that can uphold the rights and interests of regulators, regulatory sandbox participants, and consumers.
- Clearly define what counts as “digital innovation”. Decide which innovations are allowed in sandboxes.
- Ascertain which organisations, associations, and authorised entities will take part in the working group tasked with creating broad guidelines for the use of regulatory sandboxes in BRICS. Not just regulators, but also startups, businesses, and consumers should have a say.
- Widen the scope beyond just FinTech like Russia.
- Create precise and comprehensive requirements, or “fit and proper criteria,” for future participants’ “admission” to the experimental legal regime of the regulatory sandbox.
- Establish flexible testing times. Don’t let sandboxes remain open for more than three years. Depending on performance, permit an early departure or extend.
- Participants in sandboxes are given regulatory “reliefs,” which usually include lowering license, certification, and accreditation requirements. Nonetheless, some of the suggestions contain contentious tax advantages, underscoring the necessity of a coordinated, careful strategy.
- Provide precautions, such as previous notice, permission, liability insurance, and compensation measures, for prospective clients and partners.
- The rules governing the regulatory sandboxes must also adhere to the laws protecting competition.
the paper provides an in-depth exploration of regulatory sandboxes as experimental legal frameworks for digital innovation. Sandboxes are essentially controlled environments where businesses and innovators can test and experiment with new and innovative AI products, services, or business models under the supervision of a regulatory authority, typically for a limited period. The article focuses in the BRICS nations development and implementation of the regulatory framework for sandboxes. The paper adopts a comparative approach By analysing and contrasting the approaches taken by each of the BRICS nations to the regulatory sandbox. The paper gives many insightful recommendations and calls for BRICS cooperation and potentially a unified sandbox model. This work makes a very insightful and useful contribution to the discourse on Regulatory Sandboxes.
[1] elizaveta gromova & Tjaša ivanc, Regulatory Sandboxes (Experimental Legal Regimes) for Digital Innovations in BRICS, 7(2) BriCs law Journal 10–36 (2020).