Exploring Blockchain Industry Regulatory Policies: Practices and Challenges of the Regulatory Sandbox

Recently, the Hong Kong Securities and Futures Commission announced the inclusion of cryptocurrency exchanges in the "Regulatory Sandbox", a move that has once again drawn the industry's attention to the concept of the regulatory sandbox. The regulatory sandbox was initially proposed by the UK government in 2015, aimed at providing a relatively lenient environment for fintech companies to test innovative products and services, while also allowing regulators to explore regulatory approaches suitable for financial innovation.

This concept has rapidly been adopted globally, with multiple countries establishing regulatory sandboxes for cryptocurrencies and virtual finance. China has also begun to experiment in this area, with relevant explorations taking place in Jiangxi Gan Zhou, Zhejiang Hangzhou, Guangzhou, Shenzhen, in addition to Hong Kong.

Government-led Regulatory Sandbox Practices

Ganzhou Model

In July 2017, the Blockchain Financial Industry Regulatory Sandbox Park in Ganzhou District, Jiangxi Province was launched, marking the first government-led blockchain regulatory sandbox in mainland China. The park encourages the entry of enterprises focused on blockchain technology innovation and financial application innovation, providing policy support. Currently, the park has established an industrial base covering 25,000 square meters and has formulated a series of related policies, such as promoting blockchain filing.

Although the park has been operational for more than a year and has received attention from multiple parties, its specific achievements in terms of innovation in the Blockchain industry and regulatory innovation still need further observation.

Hong Kong Plan

In November 2018, the Hong Kong Securities and Futures Commission announced the inclusion of cryptocurrency exchanges in the Regulatory Sandbox. This plan is divided into two phases, with the second phase lasting at least 12 months. During this period, cryptocurrency exchanges seeking regulation will receive special regulatory exemptions to conduct exploratory operations.

The Hong Kong Securities and Futures Commission stated that if the results of the Regulatory Sandbox experiment indicate that there is a need to regulate cryptocurrency exchanges, they will consider incorporating them into the regulatory framework and may issue licenses.

Insufficient Government Participation in Pseudo Regulatory Sandbox

In addition to the formal Regulatory Sandbox in Ganzhou and Hong Kong, some cities are also attempting similar models, but due to the lack of direct participation from government regulatory agencies, these attempts are closer to industrial parks rather than a true Regulatory Sandbox.

For example, the Shenzhen Regulatory Sandbox Industrial Park, Qingdao's "Taishan Sandbox", and Hangzhou's China Blockchain Regulatory Sandbox Hangzhou Bay Industrial Park, these projects are mostly led by non-profit organizations, lacking direct participation from the government or regulatory agencies.

The Essence and Challenges of the Regulatory Sandbox

A true Regulatory Sandbox should connect fintech innovation companies with government regulatory departments, and both parties should jointly explore new policies suitable for fintech innovation within a specific scope. The physical space is not the core; the key lies in the "regulation" itself.

Currently, many cities in China use the name "Regulatory Sandbox" to implement park incubation. Although a certain degree of relaxed regulatory environment is provided, the substantial significance for promoting the coordinated development of regulatory mechanisms and financial technology innovation is limited. Despite the potential for effective self-regulatory norms generated by industry clusters led by these autonomous organizations, which could influence regulatory policies, this goal remains difficult to achieve based on the current operational status of blockchain industrial parks.

In the future, how to ensure effective regulation while protecting innovation will be an important challenge faced by the blockchain industry and regulatory agencies together. The truly meaningful practice of a Regulatory Sandbox requires deep cooperation among the government, enterprises, and industry organizations, as well as more flexible and innovative regulatory thinking.