CONTENTS
- 1. Regulatory Sandbox | Definition
- - Background and Need for Introduction
- 2. Regulatory Sandbox | Main Types of Financial Regulation
- - Innovative Financial Services
- - Designated Agent
- - Consignment Test
- - Expedited Regulatory Confirmation System
- 3. Regulatory Sandbox | Operating Procedures
- - Innovative Financial Service
- - Designated Agent
- - Consignment Test
- - Expedited Regulatory Confirmation System
- 4. Regulatory Sandbox | Points to Note
- - Review of the Temporary Nature of the Exception and Business Continuity
- - Strict Compliance With the Scope of Business
- - Establishing a Consumer Protection and Risk Management System
- - Possible Changes in Legal Status and Revision of the Model
- 5. Regulatory Sandbox | Responding to Market Entry
- - Proactive Legal Review of the Service Structure
- - Detailing Consumer Protection and Risk Management Plans
- - Business Design That Considers Institutionalization After Verification
- - Legal Support
1. Regulatory Sandbox | Definition
The regulatory sandbox is a system that temporarily exempts or suspends existing regulations under certain conditions when a business introduces an innovative product or service based on new technology.
Through this system, financial service providers gain the opportunity to freely test and verify new services in an actual market environment.
In this process, consumers enjoy more varied and innovative financial benefits than before, and financial authorities gain a basis for improving and refining current regulations more reasonably based on empirical data.
Background and Need for Introduction
Financial authorities introduced the regulatory sandbox largely because of market conditions in four respects.
① Active fintech support by governments worldwide
② Strict regulation centered on financial companies
③ Rapid growth of the fintech industry
④ Weak fintech utilization and competitiveness
2. Regulatory Sandbox | Main Types of Financial Regulation
The regulatory sandbox is divided into four main systems according to the purpose and method of financial innovation.
· Designated Agent
· Consignment Test
· Expedited Regulatory Confirmation System
Innovative Financial Services
An Innovative Financial Service is a system that grants special exceptions to regulations under the relevant statutes for new financial business that is recognized as distinct from existing financial services.
A notable feature is that independent pilot operation within a designated scope is possible without separate licensing.
Category | Key Details |
Eligible Applicants | Companies under the Commercial Act with a domestic place of business, financial companies, and the like |
Content of Exceptions | Application of regulatory exceptions under finance related statutes, including licensing, governance, and business conduct |
Operating Period | Two years as a baseline (with a one time extension of up to two years) |
Designated Agent
A Designated Agent is a system in which a fintech company is entrusted with the essential business of a financial company and operates the service jointly with that financial company.
Practical verification is possible by directly performing the core functions of an existing financial institution without a financial license.
Category | Key Details |
Eligible Applicants | Domestic companies under the Commercial Act that have established a cooperative relationship with a financial company, and the like |
Content of Exceptions | Permission to directly perform essential business of a financial institution, such as deposit taking and insurance underwriting |
Operating Period | Up to two years from the date of designation |
Consignment Test
The consignment test is a system in which a fintech company entrusts its financial service to a financial company and conducts a pilot operation under that financial institution's name.
It allows a small company to verify the maturity of its technology by using the financial company's infrastructure.
Category | Key Details |
Eligible Applicants | Domestic fintech companies under the Commercial Act that wish to be matched with a financial company |
Special Provisions | Pilot operation through use of the financial company's infrastructure and consignment of service usage rights |
Operating Period | A period agreed upon between the two companies in order to derive meaningful results |
Expedited Regulatory Confirmation System
The expedited regulatory confirmation system is a system under which a company asks the financial authorities whether existing laws apply to a new financial service and receives a reply with the result.
It serves to remove legal uncertainty in advance before a business is pursued in earnest.
Category | Key Details |
Eligible Applicants | Domestic companies under the Commercial Act and others that need to confirm whether the law applies |
Special Provisions | A consolidated reply on whether laws under the jurisdiction of the Financial Services Commission and other ministries apply |
Confirmation Period | Within 30 days of the application date (up to 120 days depending on the case) |
3. Regulatory Sandbox | Operating Procedures
Each system within the regulatory sandbox goes through differentiated review and operating procedures according to the nature of the service.
Innovative Financial Service
① Designation Application
② Review Process
③ Final Designation
④ Conducting the Test
⑤ Support for Market Establishment
Designated Agent
① Application Intake
② Expert Review
③ Final Designation
④ Contract Conclusion and Reporting
⑤ Conducting the Test
Consignment Test
① Participation Application
② Private Council Meeting
③ Matching with a Financial Company
④ Conducting the Test
Expedited Regulatory Confirmation System
① Application for Confirmation
② Consultation With Relevant Agencies
③ Reply With the Result
④ Follow-up Measures
4. Regulatory Sandbox | Points to Note
The regulatory sandbox is a system that verifies innovation through a temporary suspension of regulations, and ongoing legal management after designation remains necessary.
Review of the Temporary Nature of the Exception and Business Continuity
A regulatory exemption is not permanent and generally operates only within a limited period of 2 years (plus 2 years).
If the relevant laws and regulations are not arranged before the special exception ends, there may be a risk of business interruption, so a strategy for institutionalization that aligns with the end date is needed.
Strict Compliance With the Scope of Business
The business may be carried out only within the content, location, and scale of the innovative financial service approved at the time of application.
Arbitrary expansion of the business beyond the designated scope is not possible, and if a change to the service is needed, a separate change approval procedure must be completed.
Establishing a Consumer Protection and Risk Management System
Consumer protection measures must be thoroughly observed under the constant monitoring of the Financial Services Commission.
To prevent harm to users, liability insurance coverage and risk management plans must be carried out in concrete terms, and a violation may result in the cancellation or suspension of the designation.
Possible Changes in Legal Status and Revision of the Model
A regulatory exception is a temporary measure for verifying an innovative service, so the business model may need to be revised depending on the direction of future legislative amendments.
The possibility of regulatory compliance once the service is incorporated into formal laws and regulations should therefore be reviewed in advance, together with an analysis of the empirical data.
5. Regulatory Sandbox | Responding to Market Entry
A business operator preparing to enter the regulatory sandbox market should design a regulatory response strategy together with the business from the earliest stage.
In particular, the choice of system, the logic of the review, and later institutionalization should be considered as a single flow.
Proactive Legal Review of the Service Structure
The most central question in the financial authorities' review is "why an exception is truly necessary for this service."
The applicant must prove that the service is not merely for the operator's convenience, but that implementing the service itself is fundamentally impossible when the existing regulations are applied.
The applicant must be able to persuade, with objective materials and logic, how consumer benefits would be limited in the absence of an exception, and that the purpose is not to evade regulation.
Detailing Consumer Protection and Risk Management Plans
The regulatory sandbox is a system that temporarily suspends regulations, but in return, the operator's responsibility for consumer protection becomes even stronger.
To reassure the authorities at the review stage, the operator must prepare and present matters such as concrete response processes in the event of consumer harm, liability insurance coverage plans, a system for protecting personal information and assets, and a system for immediately suspending the service and reporting in the event of an incident.
Business Design That Considers Institutionalization After Verification
It should be kept in mind that a regulatory exception is not a permanent right but a temporary measure.
To prevent the risk of the business being interrupted after the verification period ends, the possibility of future legislative arrangement and conversion to a formal license should be kept in mind from the initial design stage.
A roadmap must be included on how empirical data will be accumulated to drive institutional improvement, and on how this will be linked to investment and expansion plans.
Legal Support
The regulatory sandbox is a system that requires both legal verification of and responsibility for the overall business structure.
If the service structure, the scope of the regulatory exception, and the verification conditions are not clearly designed, this may lead not only to rejection at the designation review stage but also to a suspension order during the verification process or to subsequent sanctions.
Daeryun Law Firm, Korea's 9th-largest law firm (based on 2025 National Tax Service value-added tax filings), analyzes the business model and the regulatory environment together and provides legal counsel that considers everything from the application stage to the possibility of institutionalization after verification.
If you face a situation that requires legal review during the application for or operation of a regulatory sandbox, please review the risks in advance at any time through a 🔗Legal Consultation Reservation.
