What is this “Regulatory Sandbox” System that Makes the Government Aware of Demand?

At the opening seminar of a coworking space the other day, I had the opportunity to hear the detailed explanation of what a “regulated sandbox” is. It was a good opportunity as I did not fully understand the actual situation that involved the occasional keywords such as blockchain and cryptocurrencies.
This seminar was held by Mr. Takayuki Igaki, Incubation Manager for INARYSTAR, at the coworking space called BINARY STAR located in Ginza. Mr. Igaki himself is a lawyer that seems to be helping with the implementation of a “regulatory sandbox,” and the seminar was themed “a method of exploiting unknown territories using regulated sandboxes.”

What is a regulated sandbox?


A system created for the purpose of collecting data that leads to regulatory reform by trying new technology for the time being. Worldwide, this system appears to exist and looks to be enforced in the UK, Hong Kong, Thailand, Indonesia, Malaysia, Singapore, UAE, and Australia.
With Regulatory sandbox as its name, ‘sandbox’ in the software industry refers to an environment where demonstration tests are conducted in a system environment that does not affect the whole, while ‘regulatory’ refers to a system where demonstration experiments are conducted to verify whether regulation (legal) problems do not occur. For example, if there is an attempt to demonstrate the project of a new cryptocurrency as a certified regulatory sandbox, such attempts must be not be made without a license in the cryptocurrency exchange industry as public test can be executed while regulation is stopped. However, please do not misunderstand this area as businesses need to be profitable.

Usefulness of regulated sandboxes

“You can try it first! The environment is in place.”
Until this system was enforced, it was impossible even sometimes to conduct testing as laws were not in place nor was any authorization given making it difficult to provide useful innovation for society. Current regulations have been temporarily suspended for certified persons to enable demonstration experiments. Recently the adoption of the Internet and blockchain in particular has led to increased speed for businesses while government and public organizations delay passing laws and approvals due to fears of damaging national interests. Attempts to create innovation will be created by increasing the number of business operators using the system.

Three characteristics of a regulated sandbox


1. Since the target is unlimited, it is possible to carry out demonstration experiments regardless of what law is involved.
With cryptocurrency services, it is possible to carry out unlimited demonstration experiments even if there is no license from a cryptocurrency handling agent.
2. The Cabinet Secretariat serves as a central point of contact with the ministries and agencies
The Cabinet Secretariat will unilaterally coordinate the direction of relevant ministries and agencies and guidance will be provided for ministries and agencies.
3. A traditional treasure phrase called “Recommendation through Prime Minister”
Even if ministries and agencies disagree, a person may qualify from the cry of the Price Minister.
The third item points out that even if the FSA objects, the national boss will take care of it. Mr. Igaki says that if such situation occurs, a severe earthquake would run through the ministries and agencies thus each ministry and agency would have to respond. Anyway, it seems like trying to support innovation from a top-down approach as a country is no boring obstacle.

Flow to certification


※ 2. It seems that results will come out in about a month after application. As a decision of the government it is quite an early impression as judgment from a government system. The sense of urgency is a necessary element for business success!

1. Plan formulating (business entity and) advanced consultation to Cabinet Secretariat
2. Submit application to competent minister
3. Discussions between the ministries concerned and the innovative business activities evaluation committee
4. Do not approve, announce or approve the plan
5. Regular report · Termination report

About actual certified projects


Recently you may have heard that Crypto Garage Co., Ltd. was certified. The content being a service that uses atomic swaps to swap cryptocurrency and legal currency with settlement. For example, have you heard that cryptocurrency does not settle immediately as traffic increases? It is a service to instantly exchange (swap) cryptocurrency with legal currency and settle it immediately. This falls under the regulation of the cryptocurrency exchange industry that provides the act of exchanging cryptocurrency with legal currencies. What a story it is where one can start and within only a year you can go grab a cryptocurrency exchange business.
Although it is a regulation sandbox system, I think that it is a very good system for Crypto Garage’s service.
Is a payment service using atomic swaps an honest exchange? You would think. But that is because the government does not know the fine demand; it will be subject to regulation targeting a wider range of the replacement industry. However, if the usefulness of their service is proven, it will be possible to revise the law so that it is not just a replacement business but an exceptional service. As politicians inevitably hedge risk, they regulate everything widely. I think it is a very good service if grasped by the system and becomes a place to notice the pinpoint demand through a “regulatory sandbox” where usability is spread globally.