A Guide to Securities Commission Regulatory Sandbox
Definition and purpose:
A regulatory sandbox is a framework that allows companies to test innovative capital market products or services within a controlled environment. It enables businesses to trial new solutions that contribute to market growth while ensuring compliance with regulatory safeguards. This initiative supports market vibrancy, encourages technological adaptation and provides insights into evolving regulatory needs.[1]
The Executive Chairman of Securities Commission Malaysia (“SC”), Datuk Mohammad Faiz Azmi highlighted in his opening address at the SCXSC Fintech Summit 2024: “Through initiatives like the regulatory sandbox and SCxSC, we enable industry experimentation and foster collaboration with the broader ecosystem.”[2]
The SC acknowledges that the rapid pace of technological evolution may not always align with existing regulatory frameworks. Therefore, the regulatory sandbox plays a crucial role in facilitating the testing of innovative capital market products or services by offering a controlled environment for corporations to experiment with new innovations while implementing the appropriate safeguards to ensure adequate testing and investor protection.
Overview of the Securities Commission’s Role:
The SC has a broad range of responsibilities, including overseeing the development of the overall capital market and its key segments, such as the equity market, bond and sukuk markets, Islamic capital market, fund management, derivatives and other market-based platforms and services. The SC promotes innovation within the capital market while simultaneously creating opportunities for a sustainable financing ecosystem.
Additionally, the SC ensures the proper conduct of all market participants through comprehensive supervisory, surveillance, and enforcement efforts. It advocates for the adoption of robust corporate governance practices and facilitates greater cross-border regulatory cooperation. Through its oversight role, the SC ensures compliance while also nurturing innovation within both the financial and technological sectors.
Importance of Regulatory Sandboxes
Regulatory sandboxes allow businesses to test their CMPOS before launching them on a full scale. This mitigates potential risks, ensures regulatory alignment, and provides valuable data on market readiness. Fintech companies and capital market innovators benefit from the sandbox’s structured framework, which enables:
- Controlled testing of new products and services.
- Identification and management of potential risks.
- Feedback loops between regulators and industry participants.
- Greater investor confidence in emerging financial solutions.
Eligibility Criteria
To qualify for participation in the regulatory sandbox, applicants must meet the following requirements:
| Eligibility Criteria: | |
| (i.) | The proposed CMPOS must be innovative and not currently available in Malaysia. |
| (ii.) | The solution must benefit Malaysia’s capital market and be intended for local deployment. |
| (iii.) | The applicant, including its directors, controllers, and senior management, must be fit and proper. |
| (iv.) | The company must demonstrate operational readiness and have adequate testing and exit plans. |
| (v.) | The applicant must provide a detailed regulatory and risk assessment plan. |
| (vi.) | The CMPOS should contribute to areas such as financial inclusion, Islamic finance, sustainability, retirement solutions, or market efficiency. |
Types of Innovation: The SC may regard a capital market product or service as innovative or provides a meaningful value proposition if the applicant;[3]
| Types of Innovation: | |
| (vii.) | utilises new or emerging technological, legal, or business structures in the offering of an existing capital market product or service; or |
| (viii.) | applies existing technological, legal, or business structures in a different manner that is currently not available in the Malaysian capital market. |
Regulatory Flexibility:
Using the sandbox to test innovations under the regulator’s supervision allows for the companies and businesses to operate within the testing parameters for a set period of time without having to go through the full authorization process laid out by the regulators.
Duration of Participation:
The permissible time-period for testing will be a permitted period of twelve (12) months.[4] However the timeframe for sandbox participation can also be a duration other than twelve months, based upon approval by the SC.
Monitoring and Reporting:
The reporting obligations consist of the following and the information must be submitted in accordance to the timeline and manner as may be specified by the SC:[5]
- A quarterly compliance report showcasing the participants’ compliance to the terms or conditions imposed by the SC;
- A quarterly progress report to demonstrate the progress of the participant’s testing activities including testing outcomes in relation to the scaling up or winding down of its operations, where applicable;
Application Process
Applications for the regulatory sandbox will be open from 15 April 2025 to 31 May 2025. The SC may register an applicant if they meet the necessary criteria. Key steps in the application process include:
| Requirements | |
| 1. | Pre-Consultation: Applicants must consult with the SC before submitting an application.[6]
|
| 2. | Document Submission: Required documents include company profiles, shareholder and director details, declarations, and specific information on the proposed CMPOS. |
| 3. | Payment of Fees: Prescribed application fees must be submitted along with the application |
| 4. | Submission to SC:
Physical Copies: Executive Chairman, Securities Commission Malaysia 3, Persiaran Bukit Kiara 50490 Kuala Lumpur Tel: (603) 6204 8000 Fax: (603) 6201 5282 (Attention: Digital Strategy & Innovation) Soft Copies: Email submissions should be sent to aFINity@seccom.com.my. |
Conclusion
The Securities Commission’s regulatory sandbox provides a structured environment for businesses to innovate while maintaining regulatory compliance. It serves as a vital tool for fintech and capital market players seeking to introduce groundbreaking solutions without undue regulatory hurdles. By leveraging this initiative, companies can refine their offerings, navigate compliance challenges, and contribute to a more resilient capital market.
If you would like to explore how the regulatory sandbox can benefit your business, please consult your legal professionals. Should you have any questions, feel free to contact our Advisory & Compliance Partner, Mr. Afif Che Had (afif@nzchambers.com), or our Executive, Ms. Prue for further guidance.
Authors:
- Afif Che Had
- Ms. Prue
References:
[1] “Regulatory Sandbox – Digital.” Securities Commission Malaysia, Securities Commission, www.sc.com.my/development/digital/regulatory-sandbox. Accessed 17 Mar. 2025.
[2] Tan, Vignesh. “SC Unveils Sandbox, Khazanah Collaboration to Boost Capital Market Innovation.” Fintech News Malaysia, 12 Mar. 2025, https://fintechnews.my/46318/innovation/sc-boost-capital-market-innovation/.
[3] Securities Commission Malaysia. “Chapter 5.01d.” Guidelines on Regulatory Sandbox SC-GL/1-2025, Securities Commission Malaysia, 2025, https://www.sc.com.my/api/documentms/download.ashx?id=88143b40-5448-4127-99e9-9f994fbad8ca.
[4] “Regulatory Sandbox – Digital.” Securities Commission Malaysia, Securities Commission, www.sc.com.my/development/digital/regulatory-sandbox. Accessed 17 Mar. 2025.
[5] Securities Commission Malaysia. “Chapter 9.” Guidelines on Regulatory Sandbox SC-GL/1-2025, Securities Commission Malaysia, 2025, https://www.sc.com.my/api/documentms/download.ashx?id=88143b40-5448-4127-99e9-9f994fbad8ca.
[6] Securities Commission Malaysia. “Chapter 6. ” Guidelines on Regulatory Sandbox SC-GL/1-2025, Securities Commission Malaysia, 2025, https://www.sc.com.my/api/documentms/download.ashx?id=88143b40-5448-4127-99e9-9f994fbad8ca.
[7] The Capital Markets and Services Act 2007
Published Date: 17 March 2025