An online event was held on June 11, 2024, by the Cyprus Securities and Exchange Commission (‘CySEC’) for the launch of its Regulatory Sandbox. CySEC’s initiative marks significant progress in the financial, regulatory and supervisory technologies (FinTech, RegTech and SupTech) in Cyprus.

Over 500 stakeholders attended the virtual launch event, including among other representatives from regulatory bodies, financial institutions, law firms and technology innovative firms. The attendees were informed about the Regulatory Sandbox’s operational framework and the advantages it could offer to the market participants.

The event highlighted CySEC’s commitment to balance innovation, investor protection, and market integrity. CySEC’s ongoing dialogue with market participants through the Innovation Hub launch has led to the creation of the Regulatory Sandbox.

What is CySEC’s Regulatory Sandbox?

CySEC’s Regulatory Sandbox is a temporary test environment that allows businesses to test innovative products or services and benefit from non-binding guidance by the Regulator.

What is the objective of a Regulatory Sandbox focusing on the financial sector?

The Regulatory Sandbox:

• Offers a supervised setting for testing new products, technologies or business models under the oversight of a financial sector;
• Establishes a transparent cooperation channel between entities creating technology-based solutions in financial services regulated entitiesl;
• Ensures that Regulations evolve with technological developments in the financial services.

Which entities can participate in the Sandbox?

The Regulatory Sandbox is designed for both regulated and unregulated entities. The Regulated Entities could be Investment Firms, Alternative Investment Fund Managers, Crypto Asset Service Providers, Operators of Trading Venues, Administrative Service Providers, UCITS Management Companies and Crowdfunding Service Providers.

In order to participate in the Sandbox, the unregulated entities should belong to one of the following categories:

• Have a collaboration with a Regulated Entity;
• Are using only historic Data;
• Are using only Demo Accounts;
• Have submitted or will submit an application;

What are the eligibility criteria for a product, service or business model to apply in the Regulatory Sandbox?

The product, service or business model should demonstrate:

• Genuine innovation;
• Consumer benefit and overall financial market improvement;
• Readiness for testing in a production environment;
• Necessity for testing;
• Intention for product/tool/solution development in the domestic market.

What can be expected by the Firms participating in the Regulatory Sandbox?

Participants in the Sandbox can expect:

• Direct collaboration with CySEC to ensure compliance with regulatory requirements;
• A well-designed platform to test and validate new technologies and business models;
• Feedback and insights from CySEC to enhance their offerings.

Firms interested in participating in the Regulatory Sandbox will benefit from the unique opportunity to develop their products while at the same time ensuring compliance with the Regulatory standards. CySEC’s initiative supports innovation and safeguards the integrity of the financial market.

Dr. George Theocharides, Chairman of CySEC, highlighted the importance of this initiative: “With the introduction of the Regulatory Sandbox, we are taking another major step in fostering responsible innovation in the financial services sector. Our goal is to support the development of cutting-edge solutions that meet technological advancements, without compromising market integrity and investor protection.”

The launch of CySEC’S Regulatory Sandbox marks a significant milestone for the financial services sector in Cyprus. By fostering innovation in a supportive environment CySEC is promoting technological progress while ensuring market integrity and investor’s protection. Firms interested in participating in the Sandbox can find the relevant application available on CySEC’s website.

With 20 years of expertise in the financial services regulation industry, AGPLAW and our team of experts, are well-equipped to provide expert guidance and solutions. Contact us at regulatory@agplaw.com should you have any further questions.

The information provided by AGPLAW | A.G. Paphitis & Co. LLC is for general informational purposes only and should not be construed as professional or formal legal advice. You should not act or refrain from acting based on any information provided above without obtaining legal or other professional advice.