The European Commission opens a blockchain regulatory sandbox

Sandkassen establishes a pan-European framework for regulatory dialogues to increase legal certainty for innovative blockchain solutions. Funded by the Digital Europe program and delivering on the SME strategy, Sandkassen runs from 2023 to 2026 and will annually support 20 projects, including use cases from the public sector on the European Blockchain Services Infrastructure. Projects will be selected through calls for expressions of interest. Each year, the most innovative regulator participating in the sandbox will also be awarded a prize. The sandbox will be facilitated by a consortium led by Bird & Bird and its consulting arm OXYGY supported by blockchain experts from WBNoDE and web designers from Spindox, procured through an open tender in 2022. The selection process will be overseen by a panel of independent academic experts.

Distributed Ledger technologies across industry sectors

Distributed Ledger technologies including blockchain have wider utility than financial services. DLT can support regulatory technologies that help public authorities fight counterfeiting in global supply chains and protect verifiable credentials (eg educational diplomas) from fraud. Companies can facilitate the exchange of non-personal data to train algorithms, and/or create unique digital twins for assets they buy, sell or insure in the mobility, energy and manufacturing sectors. Financial players expect to use DLT to reduce the costs of trading securities. While pilots have shown significant potential for DLT across industry sectors, legal uncertainty prevails as governance is still shared between many actors. In order to increase legal certainty in support of Europe’s ambition for digital leadership in this digital decade, there is a need for a strengthened dialogue between regulators and innovators. The European Blockchain Regulatory Sandbox addresses this need by providing a trusted environment for regulators and providers of DLT technologies to engage.
Regulation dialogs

The aim of the European Blockchain Regulatory Sandbox is to facilitate cross-border dialogue with and between regulators and supervisors on the one hand, and companies or public authorities on the other. In these dialogues, use case developers can present their business case to obtain legal guidance from regulators. The law firm Bird & Bird acts as a facilitator, setting up a secure interface between developers and regulators and providing legal advice to selected blockchain use cases. Regulatory issues can apply to any area of ​​law. The sandbox will allow supervisors to improve their knowledge of cutting-edge technologies involving DLT. The experiences will be shared between participating regulators, helping the Commission to identify best practice. The European Blockchain Regulatory Sandbox will cooperate with other relevant sandboxing frameworks, notably the EU Digital Finance Platform and the Artificial Intelligence Sandboxes once established under the AI ​​Act. This collaboration is of central importance given the increasing convergence of innovative technologies in use cases that often involve multiple industry sectors.
Who can participate?

The sandbox is open to companies from all industry sectors and public entities for projects beyond a proof-of-concept stage and already close to the market or at an early stage of operation, and involves, among other things, the use of DLT. More mature use cases will be prioritized where legal and regulatory issues of wider relevance arise. Use cases selected for distribution between public authorities in the European Blockchain Services Infrastructure will have priority, but annually up to 20 use cases with a cross-border dimension can also participate. The selection of use cases will be made by the sandbox facilitator based on criteria agreed with the European Commission. However, the European Commission will not approve individual use cases for participation. The facilitator will be supported by an independent academic panel of experts for the selection of use cases. Choosing to participate in the sandbox does not imply a legal approval of the business model.
Next step

Innovative public entities and private sector companies (including start-ups and scale-ups) established and operating in the European Economic Area can apply in the first call for expression of interest that has just been launched. This first call will be open until 14 April 2023. The European Blockchain Regulatory Sandbox will operate for 3 years with three annual cohorts of 20 use cases each.

A designated online portal for the European Blockchain Regulatory Sandbox is live and contains all relevant information for interested parties.