NRB mandates regulatory sandbox testing before launch of digital financial services

KATHMANDU: Nepal Rastra Bank (NRB) has introduced a new regulatory framework requiring digital financial products and services to undergo mandatory testing before being launched in the market, aiming to balance innovation with consumer protection in the country’s rapidly evolving fintech sector.

The central bank has enforced the Regulatory Sandbox Guidelines, establishing a controlled environment where banks, financial institutions, and fintech companies can test innovative technologies and digital financial services under regulatory supervision before full-scale deployment.

According to NRB, the guideline has been introduced to promote safe, responsible, and innovative digital financial services while mitigating potential risks arising from the increasing use of technology in the financial sector.

Six-Month Testing Period Mandatory

Under the new framework, fintech firms and financial institutions seeking to introduce new digital products or services must first apply to participate in the regulatory sandbox. Approved products will undergo a supervised testing phase of up to six months before they can receive authorization for commercial operation.

The testing period may be extended by an additional six months under special circumstances. Products that successfully complete the testing process will be eligible for regulatory approval and eventual market launch.

NRB has established a structured four-stage process for sandbox participation, including application, evaluation, testing, and final approval.

A 45-working-day application window will be opened for eligible applicants, while the central bank will complete the evaluation process within 120 working days after the application period closes.

Boosting Digital Innovation and Financial Inclusion

The central bank said the sandbox framework is designed to encourage innovation while ensuring consumer protection and financial stability. It is also expected to strengthen collaboration between traditional financial institutions and emerging fintech companies.

NRB believes the framework will play a significant role in monitoring and managing risks associated with new technologies while supporting broader financial inclusion and improving access to digital financial services across Nepal.

Eligibility Criteria for Participants

To qualify for participation, companies must be legally registered in Nepal and propose genuinely innovative financial products or services. The proposed solutions must also contribute to financial inclusion and demonstrate potential public benefits.

Additionally, participating institutions must maintain adequate technical capacity, including at least two full-time technical staff and a project manager with a minimum of two years of relevant experience.

Wide Range of Digital Products Eligible

The guidelines identify several categories of financial technologies and services that may qualify for sandbox testing, including:

• Application Programming Interfaces (APIs)
• Mobile money services
• Retail payment solutions
• Digital customer identification systems
• Digital lending platforms
• Smart contract technologies
• Cybersecurity products and services

Cryptocurrency and Online Betting Excluded

While encouraging fintech innovation, NRB has explicitly excluded certain products from the regulatory sandbox.

Cryptocurrencies, virtual assets, central bank digital currencies (CBDCs), online betting, gambling-related products, and similar activities will not be eligible for testing under the framework.

The restrictions are consistent with Nepal’s existing regulatory stance on digital assets and online gambling.

Consumer Protection Requirements

The guidelines require participating institutions to maintain strict customer privacy standards and comply with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations.

Companies must also establish mechanisms to compensate customers for any losses incurred during the testing phase. Successful completion of the sandbox does not automatically grant operational approval; firms must still obtain any necessary licenses and regulatory clearances before commencing full-scale operations.

What Is a Regulatory Sandbox?

A regulatory sandbox is a controlled testing environment that allows companies to trial innovative technologies, products, or services with a limited number of real customers before a broader commercial rollout.

Rather than launching a new financial technology directly to the public, firms can test its functionality, identify potential risks, and demonstrate compliance under regulatory oversight. Under NRB’s new framework, a company developing a new digital financial service must first complete sandbox testing before being permitted to offer the service to the wider market.

The move aligns Nepal with global regulatory trends, where central banks and financial regulators increasingly use sandbox frameworks to foster fintech innovation while safeguarding financial stability and consumer interests.