IMF Urges Clear Mandate and Dedicated Team for Bhutan’s Fintech Sandbox

Bhutan's journey toward a modern digital financial system has entered a critical phase. A recent technical assistance review by the International Monetary Fund, prepared by Puja Singh from the IMF's Monetary and Capital Markets Department and fintech expert Ken Coghill, takes a close look at the country's fintech regulatory sandbox. The report offers both encouragement and caution, praising Bhutan's initiative while pointing out the structural reforms needed to make it truly effective.

The Royal Monetary Authority of Bhutan launched its regulatory sandbox in June 2020. The idea was simple but ambitious: create a safe, controlled space where new financial technologies could be tested before being rolled out widely. Around the world, sandboxes have helped regulators balance innovation with financial stability. Bhutan hoped to do the same as part of its broader digital transformation agenda.

A Good Idea Facing Real Challenges

Five years after its launch, the sandbox has established a basic framework but has yet to deliver strong results. The IMF team, which visited Thimphu in August and September 2025, conducted training sessions, reviewed documents, and met with regulators, banks, fintech firms, and government agencies. International regulators from the United Kingdom and Dubai also shared their experience virtually.

The review found that although the sandbox exists in practice, it lacks a clear legal foundation. Bhutan's main financial laws do not explicitly authorize regulatory waivers or clearly define the central bank's authority over unlicensed sandbox participants. This creates uncertainty and could limit the regulator's ability to act decisively if problems arise.

Another major issue is focus. The sandbox currently covers a wide range of activities, including both regulated and non-regulated services. This broad scope has stretched limited resources. In fact, none of the six firms in the second cohort moved to live customer testing. Most were still working on early-stage concepts or developing internal tools. The IMF suggests that such projects might be better suited to innovation hubs or short-term tech sprints rather than a formal sandbox that requires close supervision.

Governance and Resource Gaps

The report also highlights weaknesses in governance. The Steering Committee, meant to provide high-level direction, has become involved in operational tasks. Meanwhile, another committee handles both reviewing applications and supervising participants, which can blur accountability.

Staffing shortages make matters more difficult. The sandbox does not have a dedicated full-time team. Instead, it depends on staff from other departments who are already under pressure. Bhutan has experienced high civil service attrition in recent years, with many skilled workers leaving. This has reduced the capacity available to oversee complex fintech experiments.

Risk Management and Industry Concerns

Strong safeguards are essential in any sandbox. However, the IMF review notes that Bhutan does not yet have a formal risk tolerance framework that clearly defines acceptable levels of risk during testing. Entry criteria for participants could also be strengthened, particularly in assessing character, fitness, and operational readiness. Clearer rules for how firms exit the sandbox are needed as well.

Data privacy is another sensitive area. Plans to share anonymized customer data must be supported by strong legal backing and clear consent mechanisms. Without this, trust could be undermined.

Banks have also expressed concerns. Some were hesitant to share data with startups with which they were not closely involved. Others questioned whether smaller firms had sufficient cybersecurity standards. This disconnect between industry and sandbox priorities has slowed progress.

A Roadmap for Reform

Despite these challenges, the IMF sees potential. It recommends that Bhutan begin with a detailed feasibility study to assess whether a regulatory sandbox remains the best tool given current resources and market conditions. Alternatives such as innovation hubs or focused technology sprints might be more practical for early-stage projects.

If the sandbox continues, reforms should follow quickly. The legal basis must be clarified. Governance roles should be streamlined. A dedicated full-time team should be created. The sandbox's scope should be narrowed to regulated financial activities that directly support financial stability and inclusion.

The IMF also proposes creating a broader "Innovation Facilitation Program" that combines different tools for different stages of development. With stronger foundations, better coordination with banks and government technology agencies, and sustained capacity building, Bhutan's sandbox could become a powerful driver of responsible innovation.

Bhutan's digital future depends not only on bold ideas but also on careful execution. The next steps will determine whether the sandbox becomes a lasting platform for innovation or remains an experiment that never fully matures.