Regulatory Sandbox in Nepal: Nepal Rastra Bank Introduces Groundbreaking Guidelines for Fintech Innovation

KATHMANDU: In a major policy development aimed at accelerating Nepal’s digital financial transformation, the Nepal Rastra Bank (NRB) has released the Consultative Draft of the Guidelines on the Regulatory Sandbox, opening a new era of regulatory flexibility and technological experimentation in the country’s financial sector.

Issued by the NRB’s Payment Systems Department, the draft guidelines—dated 15 Shrawan 2082 (July 30, 2025)—mark the first formal step toward the institutionalization of controlled testing environments for innovative financial technologies (fintech), allowing participants to develop, test, and deploy digital financial products and services within regulatory parameters.

A Strategic Push for Fintech Innovation
The Regulatory Sandbox is one of the core initiatives under Pillar 4, Objective 2, Strategy 2, Action 2 of NRB’s Fourth Strategic Plan (2022–2026). With growing internet access (38% of households), smartphone usage (72.94% of the population), and decreasing mobile data costs ($2.25 per GB in 2019 to just $0.43 in 2023), Nepal has become fertile ground for digital disruption in financial services.

The Regulatory Sandbox aims to create a safe, supervised, and evidence-based framework for fintech companies and regulated financial institutions to test new financial solutions without exposing the broader financial system to potential risks.

Scope and Eligibility: Who Can Apply?
Participants eligible for the Sandbox include:

-Licensed banks and financial institutions (BFIs)

-Payment System Operators (PSOs)

-Payment Service Providers (PSPs)

-Remittance companies

-Fintech companies proposing new products, services, or business models

While authorized financial institutions may enter the Sandbox directly, fintech startups without NRB licenses must collaborate with regulated financial entities before commencing live testing.

What Can Be Tested in the Sandbox?
According to Annex 2 of the guidelines, eligible innovations include:

-APIs

-Mobile money services

-Retail payments

-Digital Know Your Customer (KYC)

-Smart contracts

-Cybersecurity products

-Embedded finance solutions

-Regulatory technology (RegTech) tools

-Digital identity systems

-Financial inclusion products

However, testing of cryptocurrencies, central bank digital currencies (CBDCs), online betting, gaming, or similar products is strictly prohibited.

Sandbox Framework: Four-Phase Lifecycle
The Regulatory Sandbox will operate under a structured four-phase cycle:

Application Phase: Applicants submit their testing proposal, detailing innovation, testing plans, and safeguards.

Evaluation Phase: NRB assesses the application based on eligibility, risks, regulatory needs, and consumer benefits.

Testing Phase: Selected applicants (Participants) conduct real-time, supervised testing for a maximum of 6 months, with a possible extension of another 6 months.

Graduation or Exit: Products are evaluated for market suitability, operational success, risk mitigation, and consumer protection. Successful participants may seek full regulatory approval or licensing.

Participants must bear the costs of testing and are responsible for all associated consumer obligations.

Regulatory Flexibility and Exemptions
To encourage innovation while maintaining oversight, NRB has proposed temporary exemptions during the testing phase, such as:

-Authorization to launch products

-Relaxation of asset maintenance and minimum paid-up capital requirements

-Flexible consumer reporting standards

-Simplified KYC/AML compliance measures (with consumer consent)

-Access to payment infrastructure at low cost

-Relaxed marketing rules, provided transparency is ensured

For new fintech firms, further exemptions include relief from strict track record or management experience requirements, as long as safeguards are met.

Consumer Protection and Risk Controls
Despite regulatory relaxations, strong safeguards are mandatory. Testing must only include well-informed, consenting customers. Participants must have a consumer exit plan, provisions for compensating losses, and adhere strictly to data protection, KYC, AML/CFT, and cybersecurity norms. All data collected during testing must be handed over to NRB and purged afterward.

Exit and Evaluation Requirements
Participants exiting the Sandbox must:

-Provide a transition plan for consumers

-Cease testing operations as per NRB’s timeframe

-Submit final performance and risk reports

-Meet any customer-related obligations

-Apply for a full license or partner with licensed entities for market deployment

If a product fails to meet standards, NRB holds the right to revoke the Sandbox status or mandate another testing round before full-scale deployment.

Oversight and Governance
The Regulatory Sandbox will be supervised by a Sandbox Committee under NRB’s Payment Systems Department. A broader inter-departmental Governing Body will ensure consistency in supervision, application processing, and result tracking. External experts may also be brought in for advisory roles.

To maintain transparency, NRB will:

-Publicly announce sandbox themes, cohorts, and timelines

-Publish anonymized regulatory insights and test outcomes

-Share lessons learned with international regulators

Biannual Evaluation and Feedback
Every six months, external experts will review Sandbox performance, regulatory agility, consumer impact, and institutional feedback. Based on these evaluations, NRB will refine the design and improve future cohorts to better align with Nepal’s digital financial ambitions.

Eligible Innovations Must Serve Broader Goals
Applicants must demonstrate how their innovation:

-Addresses an identified gap or inefficiency

-Enhances financial inclusion

-Offers consumer benefit

-Is sufficiently developed for real-time testing

-Meets thematic criteria set by NRB per cohort

-Includes a cyber and information security framework

-Has a realistic exit and market deployment plan

-Incomplete or non-compliant applications will be rejected or deferred.

When Will the Guidelines Take Effect?
The guidelines are currently in consultative draft form and will be effective once NRB finalizes the implementation framework following stakeholder feedback. A formal announcement is expected soon.