The concept of a “Sandbox,” frequently used in the financial technology sector, refers to a controlled testing environment for innovation. According to Article 1, Section 7 of Financial Services Authority Regulation Number 3 of 2024 (POJK 3/2024) on Financial Sector Technology Innovation Implementation, a Sandbox is a facility provided by the Financial Services Authority (OJK) to test and develop innovations, ensuring they meet regulatory requirements. Financial Sector Technology Innovation (ITSK) refers to technology-driven advancements that impact products, services, activities, and business models within the digital financial ecosystem.

Purpose of the Sandbox

The purpose of the Sandbox, as outlined in Articles 6 and 7 of POJK 3/2024, is to foster responsible innovation in the financial sector, allowing for risk management within a controlled setting. It facilitates the testing of ITSK to ensure their reliability and regulatory compliance.

Eligible Sandbox Participants

As per Article 8 of POJK 3/2024, not all innovations qualify for the Sandbox. Eligible participants include innovations developed by Financial Services Institutions (LJK) or other entities that engage in financial activities under applicable laws. The participant must be a legal entity, such as a limited liability company, recognized under Indonesian law.

Participants must adhere to several key principles:

Good governance practices
Risk management strategies
Information security (including cybersecurity)
Consumer protection, including personal data security
Compliance with applicable laws and regulations

Application Process for Sandbox Participation

According to Article 9 of POJK 3/2024, potential participants must apply to the OJK, providing detailed documentation that includes:

Sandbox participation application
Testing plan
Supporting documentation

The Testing Plan must include the following:

A description of the innovation being tested (e.g., product, activity, service, or business model).
An analysis of potential risks.
A plan for risk mitigation.
Testing parameters (such as duration, consumer profile, transaction limits).
A consumer protection framework, including a mechanism for handling complaints and compensating consumers.
Evidence of the participant’s financial and resource preparedness.
An exit strategy in the event of innovation failure.
A detailed testing scenario.
Key Performance Indicators (KPIs) for measuring success.

Criteria for Participation in the Sandbox

Article 10, Paragraph (1) of POJK 3/2024 lays out the criteria for Sandbox eligibility, including:

The innovation must pertain to the financial sector and involve Indonesian consumers or partners.
It must offer a new or improved solution not previously available in the market.
The innovation must present clear benefits to the financial ecosystem.
The innovation should be ready for testing and require regulatory oversight.
It must not yet be covered by existing regulations.
Additional criteria as may be determined by the OJK.

Article 10, Paragraph (5) clarifies that participation in the Sandbox does not constitute approval for full commercial operations.

Innovation Testing and Development Process

The procedures for innovation testing are outlined in Article 11 of POJK 3/2024. After OJK approval, participants must follow their submitted Testing Plan, and they are obligated to:

Notify the OJK of any changes in the innovation or participant information.
Regularly report progress to the OJK.
Cooperate with relevant authorities.
Collaborate with LJK or other parties under the supervision of the OJK.

Participants must submit regular or ad-hoc reports on testing outcomes, and the OJK will monitor the testing directly or indirectly.

In line with Article 12, Paragraph (1) of POJK 3/2024, participants may request temporary regulatory exemptions during testing if required.

Sandbox Duration and Final Report Submission

As stipulated in Article 13, Paragraph (1) of POJK 3/2024, the Sandbox period is capped at one year, although the OJK may set a different duration based on specific needs (Article 13, Paragraph 2). The OJK may terminate testing early if the innovation does not meet the standards outlined in the Testing Plan.

Participants must submit a final report at least 20 working days before the testing period ends. This report should contain:

Results based on the testing scenario.
Achievement of KPIs.
Identification of any failures or incidents during testing.
An assessment of compliance with legal and regulatory frameworks.
A post-testing action plan.

Evaluation and Post-Sandbox Procedures

Following the testing period, the OJK evaluates the Sandbox results as per Article 14 of POJK 3/2024 to determine whether the innovation has been successful.

Participants who meet the requirements will receive a letter of completion, valid for six months, allowing them to apply for a business license during this time (Article 15, Paragraph 1-3). However, Article 15, Paragraph (5) clarifies that this letter does not grant the right to begin full-scale commercial operations. If no business license is applied for within the validity of the letter, the pass status expires automatically (Article 15, Paragraph 6).

In the case of failure, Article 17 of POJK 3/2024 requires the participant to cease all activities related to the tested innovation. The participant must ensure consumer protection and implement an exit strategy within three months of receiving a failure notice.

Article 18 of POJK 3/2024 specifies that if the testing involves other regulatory authorities, the OJK will coordinate with those authorities to ensure appropriate follow-up.

M. Ihsan Abdurrahman, S.H.

Associate

Contact:

Mail : @siplawfirm.id

Phone : +62-21 799 7973 / +62-21 799 7975

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Sandbox in the Implementation of Financial Sector Technology Innovation