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The main challenge companies face when testing and implementing innovative technologies is the need to adapt existing legislation. Developing and testing new products based on distributed ledger technology requires special conditions that are often inconsistent with existing regulations.

The solution to this problem would be the introduction of a special “regulatory sandbox” regime. It means creating an ecosystem within which companies and state-owned companies can test their developments without legal obstacles.

Federal law No. 258, “On Experimental Legal Regimes in the Field of Digital Innovation in the Russian Federation,” became effective January 28. This allows new software to be tested to ensure it is effective and useful, and then, based on the results, to decide whether to adapt current legislation to the innovation. By creating a ‘sandbox’ in a certain limited area – for example within one city – a certain number of companies can test their digital innovation products.

In addition to DLT, the list includes artificial intelligence, big data, robotics, quantum technologies, and others. In this way, companies will be able to comply with current legislation, with a number of exceptions necessary to fully test the new software. In the long run, sandboxes will stimulate job creation, the emergence of new organizations and the increased competitiveness of Russian companies in the international market.

The introduction of an experimental legal regime, or ELR, will be possible in the following areas: financial activity, trade, construction, provision of state and municipal services and implementation of state control (surveillance) and municipal control, medicine, transportation, agriculture, industry, etc. The duration of the sandbox is limited to three years and can be extended by another year by decision of the Russian government. It also accepts applications from organizations proposing the introduction of a special legal regime.

Russian sandbox outlook

Experts recognize that creating regulatory sandboxes requires an action plan coordinated with the regulator, and ELR participants must meet certain requirements. But the new federal law could result in a real opportunity for business representatives to work with innovations and new developments in the digital sphere under a special legal regime. The authorities, in turn, will assess the results and effectiveness of the experiment, decide on the extension of the sandbox and the need for changes in legislation.

One of the areas where sandbox testing can yield remarkable positive results is the residential and utility sectors. Using DLT will reduce paperwork, simplify the payment process and make billing more transparent. Users can communicate directly with resource providers and know exactly what services their money has been spent on.

According to data from the Russian Ministry of Economic Development, eight projects have already been selected in Russia to be included in the regulatory sandboxes. Among them are the initiatives of Mobile TeleSystems, one of the main Russian mobile operators, including a ‘smart hotel’ without staff, the possibility of biometric identification when signing contracts for services without physical presence (by phone), transport without a driver and telemedicine. . Or it will be able to use CryptoVeche, a blockchain-based voting system, to hold public hearings remotely in St. Petersburg. Then public hearings of local authorities can be put online, which in turn makes this process more accessible and transparent for residents. Other projects including the non-profit Big Data Association, the Tomsk Region Administration and the Russian Foundation for Advanced Research Projects.

ELR is a mechanism for ‘testing’ and the keyword here is ‘experimental’. This is why the projects are not large, and the spheres not the most extensive, but they are prospective.

Positive experience

In Russia, the central bank was one of the first to evaluate the possibilities to create sandboxes. In 2020, the first project – a blockchain platform for the issuance and circulation of digital rights – completed its pilot based on the regulatory sandbox it created. The central bank offers opportunities to test innovative products in the financial sector; any interested organization can apply to participate in the sandbox.

Regulatory sandboxes are a tool that has been actively used in other countries for a while. The first sandbox popped up in 2016 in the UK. It received more than 140 applications, 50 of them approved by the regulator, and 41 companies successfully completed the tests in 2017. However, statistics showed that the majority of applications were in the field of DLT and were likely used to reduce the cost of existing financial products rather than to create new ones. to create.

Sandboxes have been launched in other countries, and the United States, Australia, Singapore and Thailand have joined the list. From November 2020, the number is Nations is about 50, but some of them have significant differences in their approach to sandbox creation. For example, the Singaporean model is very similar to the UK model, but involves stricter supervision by the regulator, the Monetary Authority of Singapore. In Australia, access to the sandbox is granted, among others, to those companies that are not licensed to perform a particular type of activity in which they want to test innovations.

Tremendous global experience with regulatory sandboxes shows that testing new products under experimental legal regimes helps to attract investment, as investors are more willing to invest in companies that participate in sandboxes. It also enables the latter to set up internal processes and determine pricing and business models.

Other legislative initiatives for the digital economy

In addition to the enactment of Federal Law No. 258, a number of other bills regulating relationships in the field of digital assets and innovation have appeared in Russian law In recent years. For example, the Federal Law “ On Amendments to Parts One, Two and Article 1124 of Part Three of the Civil Code of the Russian Federation ” introduced the concept of digital law and described the nature of transactions carried out through smart contracts and signed with using electronic digital signatures. It ruled out the concept of “digital money” and equated digital rights with property rights, requiring changes to tax laws.

The Federal Law ‘On Digital Financial Assets, Digital Currencies and Amendments to Certain Legislative Acts of the Russian Federation’ consolidated the concepts of digital financial assets, or DFA, and digital currency and defined the rules for attracting investment by organizations and individual entrepreneurs through digital rights issuance. Federal law regulates the issue, accounting, and circulation of DFA, making it transparent and clear to all participants.

The views, thoughts and opinions expressed here are the sole ones of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Maxim Rukinov is head of the Distributed Ledger Technologies Center at St. Petersburg State University. He has a law degree and a Ph.D. in economics. Maxim specializes in investment portfolio management and financial analysis. His expertise is confirmed by the MIT Sloan School of Management. He is also the author of scientific publications on economic security and the impact of sanctions on the Russian economy.