Regulation on the Creation and Use of a Regulatory Sandbox Framework by the National Bank of Georgia

Order № 125/04of the President of the National Bank of Georgia May 23, 2025 Tbilisi On the Approval of the Regulation on the Creation and Use of a Regulatory Sandbox Framework by the National Bank of Georgia Based on sub-paragraph "g" of the first paragraph of Article 15, the third paragraph of Article 48 of the Organic Law of Georgia "on the National Bank of Georgia," and sub-paragraph "b" of the first paragraph of Article 25 of the Organic Law of Georgia "on Normative Acts," I hereby order: Article 1 To approve the Regulation on the Creation and Use of a Regulatory Sandbox Framework by the National Bank of Georgia, together with the attached annex. Article 2 To declare null and void the Order № 110/04 of the President of the National Bank of Georgia of May 25, 2020, "On the Approval of the Regulation on the Creation and Use of a Regulatory Sandbox Framework by the National Bank of Georgia." Article 3 This Order shall enter into force upon its publication. President of the National Bank of Georgia Natela Turnava

Regulation on the Creation and Use of a Regulatory Sandbox Framework by the National Bank of Georgia Article 1. General Provisions

1. This Regulation on the Creation and Use of a Regulatory Sandbox Framework by the National Bank of Georgia (hereinafter – the Regulation) defines the main principles for the creation and functioning of the Regulatory Sandbox by the National Bank of Georgia (hereinafter – the National Bank), as well as the conditions and procedures for its use.
2. The purpose of using the Regulatory Sandbox is to test innovative services and/or products created in a rapidly evolving technological environment, to promote their development and access to the market with lower costs, and also to identify the need for new regulatory requirements and/or changes to existing requirements within the scope of the National Bank's supervisory authority, which may be necessary for the use of innovative services and/or products.
3. The Regulatory Sandbox defined by this Regulation can be used by entities subject to the supervision of the National Bank that wish to offer an innovative service and/or product, but which contradicts the existing requirements of the National Bank and/or requires its consent. Article 2. Definition of Terms For the purposes of this Regulation, the terms used herein have the following meanings: a) Regulatory Sandbox – A framework created by the National Bank for testing an innovative service and/or product in a test environment. b) New Technology – A program and/or other technology (including financial) used to improve and/or automate the creation, delivery, and use of an innovative service and/or product. c) Applicant – An entity subject to the supervision of the National Bank that wishes to offer an innovative service and/or product which contradicts the existing requirements of the National Bank and/or requires consent, and which applies to the National Bank in accordance with the rules defined by this Regulation. d) Special Focus Group – A group of individuals whose members voluntarily express their wish to participate in the testing of an innovative service and/or product.

Article 3. Criteria for Participation in the Regulatory Sandbox To be eligible for participation in the Regulatory Sandbox, the service and/or product submitted by the Applicant must meet the following criteria: a) The Applicant, according to the National Bank's assessment, must be using a new technology for the local market or must have an innovative method of using an existing technology, and the service and/or product submitted by it must satisfy at least one of the following conditions: a.a) It increases the accessibility, efficiency, security, and/or quality of the service and/or product; a.b) It improves the effectiveness of risk management for entities subject to the supervision of the National Bank; a.c) It provides significant additional benefits to consumers; a.d) It serves to increase financial inclusion and/or technological development; b) The service and/or product offered by the Applicant must require the consent of the National Bank and/or give rise to the need for a change in the relevant regulatory framework of the National Bank or the determination of new regulatory requirements; c) The Applicant must have assessed the utility, functionality, and associated risks of the submitted service and/or product. Article 4. Applying to the National Bank to Use the Regulatory Sandbox and Information to be Submitted

1. The Applicant shall apply to the National Bank through the structural unit(s) responsible for its supervision and/or at the following email address: reglab@nbg.gov.ge.
2. The Applicant must submit to the National Bank the completed application form specified in Annex №1 of this Regulation, which, among other things, must include a justification of the compliance of the submitted service and/or product with the criteria defined by this Regulation. The justification for compliance with the criterion defined in sub-paragraph "b" of Article 3 of this Regulation must specify the relevant rule, instruction, regulation, decree, requirement, and/or directive established by the National Bank (date, number, article, etc.) that hinders the implementation of the service and/or product submitted by the Applicant.
3. If requested by the National Bank, the Applicant must submit the following, in the form and within the deadlines specified by the National Bank: a) A justification of how the Applicant intends to conduct activities related to the innovative service and/or product, which, among other things, must include: a.a) A description of the process related to the innovative service and/or product;

a.b) A description of the expected outcomes and their qualitative and quantitative assessment indicators; a.c) A justification of access to the resources necessary for testing the innovative service and/or product in a test environment; a.d) If necessary, an assessment of money laundering and terrorism financing risks and a description of mitigation measures; b) A strategy for transitioning from the test environment to the live environment; c) An exit plan for discontinuing the use of the innovative service and/or product, including for cases where the innovative service and/or product is not deemed successful by the National Bank based on the qualitative and quantitative assessment indicators submitted by the Applicant, and it becomes necessary for the Applicant to cease the relevant operations. The purpose of the plan is to ensure that the Applicant ceases operations while protecting the interests of clients and ensuring the uninterrupted functioning of the system used for the service. The plan must be subject to review upon any change in the business/operational model. This plan, among other things, must include: c.a) The circumstances under which the exit plan for the innovative service and/or product should be activated; c.b) The reasons that may lead to the failure of the innovative service and/or product; c.c) The responsible internal organizational structural unit; c.d) Procedures to ensure the proactive identification and elimination of material risks that could impede the plan; c.e) A plan for settling accounts with clients and a description of mechanisms to guarantee the protection of their funds, if necessary; d) Information on the mechanisms for informing consumers about the use of the innovative service and/or product in a test mode and for their additional protection; e) An operational risk assessment form; f) Other additional information necessary for assessing the risk of the innovative service and/or product. Article 5. Stages of Participation in the Regulatory Sandbox

1. Participation in the Regulatory Sandbox involves passing the following stages defined by the National Bank:

a) Idea testing; b) Proof-of-concept testing; c) Live environment testing. 2. To move to each subsequent stage, the previous stage must be considered successful by the National Bank. The conditions and deadlines required for passing each stage shall be determined individually by the National Bank, taking into account the specifics of the submitted service and/or product. Article 6. Idea Testing

1. Upon receiving the Applicant's application to use the Regulatory Sandbox, the National Bank assesses the completeness of the submitted application and information and conducts idea testing of the service and/or product. Idea testing includes assessing its innovativeness and systemic risks: a) The National Bank considers a service and/or product innovative if it meets the criteria defined by this Regulation. The proposed service and/or product is not considered innovative if a similar service and/or product already exists in Georgia, except when the technology used by the Applicant (including financial) or the method of using an existing technology can be considered innovative; b) The submitted service and/or product must not have the potential to materially negatively impact systemic risks and must not increase the risks of money laundering and terrorism financing.

2. The National Bank is obliged to inform the Applicant in writing (physically and/or electronically from the following email address: reglab@nbg.gov.ge) of the results of the idea testing stage within 21 (twenty-one) working days from the submission of the application. This period may be extended by an additional 30 (thirty) working days.

3. The National Bank is authorized to request additional information/documentation from the Applicant that is necessary to evaluate the results of the idea testing stage. In case of a request for additional information/documentation, the running of the deadline specified in paragraph 2 of this Article shall be suspended, and a new deadline for submitting the additional information/documentation shall be set (which may occur multiple times). The submission of the requested information/documentation by the Applicant is grounds for resuming the running of the deadline, while the failure to submit the information/documentation within the established deadline is grounds for terminating the idea testing stage. The National Bank shall inform the Applicant of the review results in writing (physically and/or electronically from the following email address: reglab@nbg.gov.ge) within the period established in paragraph 2 of this Article.

4. In the case of a positive assessment of the idea testing, the National Bank shall notify the Applicant of the successful completion of the first stage and the transition to the next stage.

5. If the Applicant submits incomplete information as provided for in paragraphs 2 and 3 of Article 4 of this Regulation, and/or if the National Bank deems the service and/or product submitted by the Applicant non-compliant with the criteria defined in this Regulation, the National Bank shall, with a relevant justification, refuse the Applicant in writing within the period established in paragraph 2 of this Article. Article 7. Proof-of-Concept Testing

6. Proof-of-concept testing involves testing the submitted service and/or product in a test environment. At this stage, the National Bank, together with the Applicant, discusses and determines the scope and duration of the testing, the reporting frequency, and the indicators for assessing the successful completion of the test.

7. Proof-of-concept testing may be conducted on a special focus group, which may consist of the Applicant's employees. At this stage, the innovative service and/or product must not be available to real customers.

8. Upon successful completion of the proof-of-concept testing, the Applicant is granted permission to move to the live environment testing stage. Otherwise, the National Bank, with a relevant justification, will refuse the Applicant in writing to continue the process in the Regulatory Sandbox.

9. Upon successful completion of the proof-of-concept testing, the National Bank shall publish information on its website about the start of the live environment testing process for the submitted service and/or product. Article 8. Live Environment Testing

10. Live environment testing involves testing the service and/or product offered by the Applicant in a real environment, taking into account the restrictions defined by the National Bank and/or the relaxed regulatory conditions within the scope of its authority.

11. For the use of the submitted service and/or product in a real environment, the National Bank shall define restrictions related to operational and money laundering and terrorism financing risks, the relaxed regulatory conditions that may be necessary for the live environment testing of the submitted service and/or product, the indicators for successful completion of the test according to relevant time periods, and the deadlines for submitting reports. These restrictions, relaxed regulatory conditions, indicators for successful completion, and reporting deadlines shall be determined individually, taking into account the specifics of the particular service and/or product.

12. The periodic reports submitted by the Applicant to the National Bank, as provided for in paragraph 2 of this Article, must include: a) The results of key indicators, key achievements, and statistical information, including information on fraud and operational incidents; b) Substantial problems related to the technology; c) Customer complaints related to incidents;

d) Other additional information that the National Bank may determine depending on the specific case. 4. The National Bank shall publish information on its website about the live environment testing of the submitted service and/or product. 5. The Applicant is obliged to inform consumers in a visible manner that its service and/or product is undergoing live environment testing within the framework of the Regulatory Sandbox. 6. The duration of the live environment testing of the service and/or product is 1 (one) year, unless a different period is specified by the National Bank. If necessary, by a decision of the National Bank, the testing period may be extended by no more than 1 (one) year (which may occur multiple times). Article 9. Exiting the Regulatory Sandbox

1. After the expiration of the live environment testing period, the Applicant shall submit the final test results. The National Bank will evaluate the submitted final results and, within 21 (twenty-one) working days of their submission, inform the Applicant in writing of the evaluation results with a relevant justification. This period may be extended by an additional 30 (thirty) working days.
2. The National Bank shall positively assess the service and/or product submitted by the Applicant if, among other things, the following conditions are met: a) The Applicant has achieved the pre-defined goal; b) The tests of the submitted service and/or product have shown the desired results and a low potential for systemic risk.
3. If the submitted service and/or product is positively assessed in accordance with paragraph 2 of this Article, the National Bank is authorized to: a) Lift the additional requirements/restrictions defined for the Applicant within the scope of the testing, which the Applicant benefited from during its participation in the Regulatory Sandbox; and b) If necessary, consider the issue of incorporating the necessary regulatory requirements for the use of the innovative service and/or product into the supervisory framework and supervisory approaches, and/or amending them accordingly.
4. If the test results show that the Applicant is not operating properly, which is expressed, among other things, by a significant deviation from the qualitative and quantitative indicators defined during the testing and/or the identification of significant and potential systemic risks, the National Bank shall: a) Decide to negatively assess the service and/or product submitted by the Applicant and to terminate the testing process;

b) Be authorized, as necessary, to change the requirements, restrictions, and deadlines defined in paragraph 2 of Article 8 of this Regulation. 5. If the Applicant expresses a desire to exit the Regulatory Sandbox before the completion of the testing stage, it must notify the National Bank in writing (physically or at the following email address: reglab@nbg.gov.ge), indicating the relevant reason. 6. In the event of a negative assessment of the final test results, termination of the testing, and/or voluntary withdrawal from the Regulatory Sandbox at the live environment testing stage, the Applicant must immediately activate the exit plan for the innovative service and/or product that it had submitted to the National Bank.