Regulatory Sandbox

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

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.

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.

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.

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.

① Designation Application

② Review Process

③ Final Designation

④ Conducting the Test

⑤ Support for Market Establishment

① Application Intake

② Expert Review

③ Final Designation

④ Contract Conclusion and Reporting

⑤ Conducting the Test

① Participation Application

② Private Council Meeting

③ Matching with a Financial Company

④ Conducting the Test

① Application for Confirmation

② Consultation With Relevant Agencies

③ Reply With the Result

④ Follow-up Measures

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.

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.

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.

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.

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.

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.

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.

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.