What is the European Blockchain Sandbox?

The pan-European Blockchain Regulatory Sandbox for innovative use cases involving Distributed Ledger Technologies (DLT) is an initiative of the European Commission. The aim of the project is to provide a framework for regulators, supervising authorities and blockchain innovators to engage in regulatory dialogue, identify obstacles from a legal & regulatory perspective in a safe and confidential environment, and thus increase legal certainty for innovative decentralized technology solutions, including blockchain. The Sandbox will allow regulators and supervisors to enhance their knowledge of cutting edge blockchain technologies. Legal advice will be provided and regulatory experience and guidance will be contributed in a safe and confidential environment. The dialogues will be held across industry sectors and geographic regions, which will help to identify and exchange best practices in the interest of the wider EU/EEA blockchain community. The best practices reports will identify regulatory and legal issues and solutions with a focus of sharing insights and lessons learned across sectors.

The initiative will annually support 20 projects starting in 2023 and is open to use cases based on any blockchain infrastructure. Blockchain use cases will be selected on the basis of the maturity of their business case, legal/regulatory relevance and their contribution to the EU’s wider policy priorities and matched with national and EU regulators. Further information about the selection criteria and the application process can be found on the website. Companies (including start-ups and scale-ups) and public entities with a validated proof of concept are invited to participate. Every year, the most innovative regulator participating in the Sandbox will be awarded a prize.

The pan-European Blockchain Sandbox is set up and operated by a consortium of legal experts from the law firm Bird & Bird and its consulting arm OXYGY supported by blockchain experts of WBNoDE which has been procured through an open call for tenders in 2022. The selection and the award process will be overseen by a panel of independent academics consisting of Professor Roman Beck (IT-University, Copenhagen), Professor Soulla Louca (University of Nicosia, Cyprus) and Professor Walter Blocher (Universities of Kassel and Vienna).

Who can apply to the Sandbox?

Companies (including start-ups and scale-ups) and public entities with a validated proof of concept can apply. EEA-based companies can operate in a consortium with non-EEA companies provided that the beneficiary project in the Sandbox is under the lead of an EEA-based company. The Sandbox is open to use cases based on any blockchain infrastructure. The applicant must have been a legal person for at least six (6) months either as: i) a legal entity registered in the professional or commercial register according to the rules of the EEA Member State where it is established, or ii) a public body established in one of the EEA Member States. The applicant should submit a validated proof of concept for a blockchain/DLT application (e.g. case studies, financial information, results document, press release, which can be strengthened by a proof of an EU funding decision, an EU Seal of Excellence, or 1st place award in an EU competition in the last 5 years). In addition, the applicant should submit the application form that is available online in English. The application form should be complete, accurate and up to date.

Use cases that fulfil these eligibility criteria will be selected on the basis of the maturity of the business case, legal/regulatory relevance and their contribution to the EU’s wider policy priorities. Further information about the selection criteria and the application process can be found on the website. Only one application may be made per applicant.

A company may apply as part of a consortium, association, or group of companies with a shared use case. If applying on behalf of a consortium, the applicant must have permission to submit on behalf of the group.

What are the benefits for blockchain use cases in having been selected for participation in the European Blockchain Regulatory Sandbox?

The regulatory Sandbox aims to provide legal certainty through facilitating regulatory dialogue and cooperation between innovators and regulators at the national and the EU level. Blockchain companies participating in the Sandbox have the opportunity to demonstrate their innovative solutions and highlight their needs regarding regulatory guidance and legal certainty to regulators and supervisors in a safe and confidential environment. They will receive legal advice from legal experts and be part of a constructive dialogue with national and EU regulators. Also, they will be able to develop their regulatory understanding and extend their network and reputation through their participation in this pan-European project. No fee will be charged for the application and participation in the Sandbox but there will not be reimbursement of costs.

What are the benefits for national and EU regulators to take part in the European Blockchain Regulatory Sandbox?

National regulators and supervising authorities will be able to discuss regulatory issues that have arisen on a national level in a cross border setting with other EU and national regulators making use of the pan-European Sandbox framework that is established for this project. Regulators have the chance to support applications of use-cases for the Sandbox that they find particularly relevant for a regulatory dialogue. Further details about the support that regulators can give are included in the Selection Criteria that are published on the website: here. Participating regulators and supervising authorities will have an opportunity to contribute to the development of best practices and lessons learned which can be shared between them. Moreover, regulators will be able to cooperate and exchange experiences and insights with other national and EU regulators participating in the Sandbox for a specific use case. In addition, the Sandbox will allow regulators and supervising bodies to enhance their knowledge of cutting edge technologies involving blockchain and distributed ledger technologies. The best practices reports will identify regulatory and legal issues and solutions with a focus on fostering mutual learning across sectors. The best practice reports will be prominently published, highlighting the contributions of the participating regulators and supervisors. Each year there will be an award for the most innovative regulator.

What is the anticipated time commitment that should be expected for participation in the European Blockchain Regulatory Sandbox?

The application process and operation of the Sandbox will be organised in a streamlined manner. Selected use cases will be provided with legal advice in the form of a first written legal assessment, identifying applicable EU and national laws and pointing to areas where particular regulatory questions may arise. Two Sandbox meetings will be organised per use case with the selected use case owner and the participating national and EU regulators/supervisors. Bird & Bird legal experts will participate at the meetings to provide legal advice also on the basis of questions that can be submitted in advance. The meetings will be held virtually and minutes will be prepared during the meetings. All documents that are exchanged or prepared as part of the meetings will only be accessible for the participants safeguarding confidential information. Further details about the operation of the Sandbox are given in the Protocol for Participation that is published on the website: here. The use case owner and the regulator(s) are requested to submit the feedback form at the end of the Sandbox operations.

Why has the EU Commission taken the initiative to set up the European Blockchain Regulatory Sandbox?

Blockchain and other Distributed Ledger technologies are among the important innovative developments in recent years with wider utility beyond crypto assets. Blockchain use cases and applications are deployed increasingly in industry sectors such as energy & utilities, education, healthcare, mobility, finance & insurance, telecommunications & IT and logistics & supply chains. Updated information on the Blockchain ecosystem developments in the EU/EEA can be found on the website of the European Blockchain Observatory and Forum, a European Commission initiative to accelerate blockchain innovation and the development of the blockchain ecosystem within the EU and so help cement Europe’s position as a global leader in this transformative new technology.

Pilots have shown a significant potential of blockchain applications, but in parallel new legal and regulatory challenges have become apparent for instance because governance in decentralized innovative blockchain technology solutions remains shared between many actors. Further, different blockchain structures and purposes give rise to different types of legal questions.

To address legal uncertainty in support of Europe’s ambition for digital leadership in this Digital Decade, there is a need to increase legal certainty through an enhanced and constructive dialogue between regulators and innovators for private and public sector use cases. The pan-European Blockchain Sandbox facilitates this dialogue in two ways. Legal advice and regulatory guidance will be provided in a safe and confidential environment in relation to individual use cases across industry sectors and geographic regions. At the same time, this exercise will help to identify and exchange best practices in the interest of the wider EU/EEA blockchain community through best practices reports that will describe regulatory and legal issues and solutions with a focus on sharing insights and lessons learned.

What is the goal of the regulatory sandbox?

The goal of the regulatory sandbox is to foster dialogue and cooperation between national and EU-level regulators and supervising authorities with companies (including start-ups and scale-ups) and public entities with a validated proof of concept and thus remove regulatory and legal uncertainties for use cases based on decentralized solutions on blockchain and potentially in combination with other technologies, such as Artificial Intelligence or Internet of Things. Concretely, the sandbox will (1) at the level of the individual use case projects in the sandbox, deliver legal advice and regulatory guidance in a safe and confidential environment, thus increasing legal certainty and understanding of the relevant rules and standards for companies and allowing regulators and supervisors to enhance their knowledge of cutting edge blockchain technologies; and (2) at the broader industry and ecosystem level, summarize the experience and lessons learned in the sandbox in best practices reports for the benefit of the wider blockchain community raising the attention of regulators to issues with the law as it stands.

Which legal and regulatory issues can be discussed in the sandbox?

The sandbox will be open for a broad range of blockchain use cases in the public and the private sector with an emphasis on topics that are of relevance across sectors and regions. Particular focus will be on areas of application where novel legal and regulatory questions arise. A wide range of complex regulatory questions could be covered including related to digital identity, cyber security, consumer protection, competition law, smart contracts for automated data processing, liability issues, AML/KYC rules and sector specific regulations in for instance the health, environment, trade, mobility, energy, financial, and other key sectors. The sandbox will not provide a derogation from existing regulatory requirements.

What is the relationship between the European Blockchain Regulatory Sandbox and the European Blockchain Services Infrastructure?

The Sandbox will be open to private and public sector companies from all industry sectors and of all sizes (including start-ups and scale-ups) for blockchain projects beyond a proof of concept stage and already close to the market. Annually up to 20 private sector use cases with a cross border dimension can participate in the Sandbox. Furthermore, use cases for deployment by public authorities using the European Blockchain Services Infrastructure (EBSI) can join the sandbox as well. The EBSI builds a pan-European infrastructure for the delivery of public services line with European values and standards of security, privacy, sustainability and compliance with EU laws. The sandbox is not limited to a specific blockchain infrastructure. 

How is the European Blockchain Regulatory Sandbox related to other European Commission initiatives such as the EU Digital Finance Platform and the regulatory sandboxes on Artificial Intelligence?

The initiatives are complementary and reinforce each other. The European Blockchain Regulatory Sandbox is focused on innovative blockchain applications across industry sectors covering a broad range of regulatory and potential legal issues, while the AI Regulatory Sandboxes to be established across the EU under the proposed AI Act (COM(2021) 206 final)) will be specialized on AI to foster innovation and provide a controlled regulatory environment for the development, validation and testing of innovative AI systems, including where relevant in real-world conditions, under the guidance and supervision by competent authorities under the AI Act. The EU Digital Finance Platform provides innovative financial firms with a single access point to national financial supervisors, including for cross-border testing. Blockchain use cases that have been onboarded through the European Blockchain Regulatory Sandbox can then be connected with relevant financial supervisors through the EU Digital Finance Platform in pertinent use cases. Given the increasing convergence of innovative technologies in use cases often involving several industry sectors, there is a close collaboration between these initiatives to make sure that experiences and insights are shared and synergies are leveraged.

Where does the funding for the European Blockchain Sandbox come from?

The European Commission funds the facilitator of the sandbox under the Digital Europe Programme. The sandbox delivers on the Commission’s SME Strategy for a sustainable and digital Europe.

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