16 February 2023Analysis

EC creates regulatory sandbox for blockchain solutions

The European Commission has launched a regulatory sandbox for innovative use cases involving Distributed Ledger Technologies (DLT).

The sandbox establishes a pan-European framework for regulatory dialogues to increase legal certainty for innovative blockchain solutions. Funded by the Digital Europe Programme and delivering on the SME strategy, the sandbox is running from 2023 to 2026 and will annually support 20 projects including public sector use cases on the European Blockchain Services Infrastructure. Projects will be chosen through calls for expression of interest.

The sandbox will be facilitated by a consortium under the leadership of Bird & Bird and its consulting arm OXYGY supported by blockchain experts of WBNoDE and web-designers of Spindox, which has been procured through an open call for tenders in 2022. The selection process will be overseen by a panel of independent academic experts.

The goal of the sandbox is to facilitate the cross-border dialogue with and between regulators and supervisors on the one hand, and companies or public authorities on the other hand. In these dialogues, use case developers can present their business case to receive legal guidance from regulators. The law firm Bird & Bird acts as a facilitator, sets up a safe interface between developers and regulators and provides legal advice to selected blockchain use cases. Regulatory questions may concern any area of law.

The sandbox will also allow supervisors to enhance their knowledge of cutting-edge technologies involving DLT. Lessons learned will be shared between participating regulators, helping the Commission to identify best practices. The sandbox will cooperate with other relevant sandboxing frameworks, in particular the EU Digital Finance Platform and the Artificial Intelligence Sandboxes once established under the AI Act.

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-market or at an early stage of being operational, involving amongst other technologies the use of DLT. Priority will be given to more mature use cases where legal and regulatory questions of broader relevance arise. Use cases chosen for deployment 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 participate as well. The selection of use cases will be done by the sandbox facilitator based on criteria agreed with the European Commission.

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 the expression of interest which 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.