According to the proposed guidelines, individuals or organizations who want to test their new product or service in the sandbox should apply to Rashtra Bank.
We use Google Cloud Translation Services. Google requires we provide the following disclaimer relating to use of this service:
This service may contain translations powered by Google. Google disclaims all warranties related to the translations, expressed or implied, including any warranties of accuracy, reliability, and any implied warranties of merchantability, fitness for a particular purpose, and noninfringement.
In order to encourage innovation in the digital financial services sector with regulation, Nepal Rastra Bank has started preparations to launch the 'Regulatory Sandbox' project. For that, the bank's payment system department has prepared a draft of sandbox guidelines for the first time and made it public this week.
The draft directive on sandboxing aims to secure new technologies with the aim of increasing access, use and quality of digital transactions by financial technology and service providers. With the advent of new technologies in the financial sector and digital transactions, the Central Bank believes that a special environment is needed to safely test products and services based on the latest technologies. To create such an environment, the 'Sandbox' program is envisaged and the concept guide mentions to encourage new innovations in digital financial services.
The guidelines brought by the National Bank under its fourth strategic plan include a policy to allow new fintech products or services to be tested within certain parameters. India, Singapore, UAE and other countries have conducted initial tests of digital banking, fintech services, digital KYC and other technologies through similar sandboxes. In India, the Reserve Bank of India has so far approved four cohorts of fintech companies for sandbox testing.
In 2024, five companies were selected by RBI in the fifth phase group. One of them, Connecting.Dot Consultancy, has developed a tool that alerts banks about bad loans, assesses the risk and suggests actions to borrowers. Similarly, EPify Technologies, which has created a platform for opening bank accounts using video KYC and digital identification system for Indian nationals who have gone to work in the Gulf, was also selected in the sandbox. Apart from RBI in India, regulators including Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority of India have also been operating regulatory sandboxes in their respective areas.
In the context of the growing demand for a regulatory sandbox in the fintech sector, this practice is going to be done for the first time in Nepal. According to the proposed guidelines, individuals or organizations who want to test their new product or service in the sandbox should apply to Rashtra Bank. Banks and financial institutions, payment service providers, remittance companies and new fintech companies can apply in the directory.
Bank examines those applications and grants permission for testing. After getting permission, the participant will test their product or service for a specified period and the test period will normally be a maximum of 6 months, the proposed directive said. "If for some reason the period needs to be extended, it should be informed in writing two months before the end of the test," the test section of the guide says, "the National Bank can extend the time up to 6 months as needed." After the end of the test, the National Bank evaluates it and grants a license or permission to operate in the market if it is successful. During the
trial period, customers are informed about it, and it is stipulated that this can only be done with their consent and possible compensation must be arranged. It is mentioned in the draft guidelines that some regulatory exemptions will be provided to organizations participating in the sandbox. If the test fails or a serious error is found, the sandbox permission will be revoked. Participating institutions may withdraw from the trial only after submitting a customer transfer plan, aggregate statement report and to the satisfaction of Rshatra Bank. If the test is successful, the path to full licensing will open.
The responsibility of sandbox management has been assigned to the payment system department of Rashtra Bank, while it has been proposed to form a 'sandbox committee' for overall monitoring. "The committee will look at the entire process from the evaluation of the application of the organization participating in the sandbox, to the approval of the test, to the monitoring of the test and to the end," according to rule 4 of the guideline, "The committee may invite external experts or consultants if it deems necessary." The first section of the
guide contains the definition, the second the objectives, the third the operational process, the fourth the administrative structure, the fifth the evaluation process of the sandbox and the sixth and seventh additional rules and communication provisions. As the digital financial system expands in Nepal, such a sandbox is expected to help test new technologies safely and expand innovation within regulatory frameworks. Rastra Bank said that suggestions can be made on this draft within 15 days.
