Regulators’ Experimentation Toolkit • 3: Regulatory sandboxes
Part A: What is a regulatory sandbox? In Chapter 2: Regulatory experiments, this toolkit describes when and how a regulator may consider taking an experimental approach. Regulators can use experiments as ways of testing or trialing new products, services, approaches, or processes. A well-designed experiment can help a regulator generate evidence or information that can inform the design or administration of a regulatory regime. In other situations, rather than initiating a stand-alone experiment itself, regulators may want to facilitate experimentation and information-gathering activities in cooperation with third parties. This is particularly relevant for innovative products and services being developed by third parties, where there is uncertainty around how an innovation will interact with and impact people, existing markets, and regulation in the ‘real world’. Innovative products or services may pose challenges for regulators because they may not fit easily within existing regulation, it may be unclear how regulation applies or they may even present a radical challenge to the regulatory framework. In these situations, both innovator and regulator will have an interest in generating evidence and information about how an innovation will work in a ‘real world’ context (e.g. with real users, or in a realistic physical environment). Setting up a regulatory sandbox is one way regulators can facilitate these experimentation and information gathering activities.
A regulatory sandbox is a facility, created and controlled by a regulator, designed to allow the conduct of testing or experiments with novel products or processes prior to their full entry into the marketplace. Regulatory sandboxes began emerging in the 2010s in financial services, with the sandbox concept borrowed from the world of computing. They provide a framework to enable industry and regulators to undertake and learn from experiments. To industry they offer access to testing in something approximating a real world environment, but usually in a limited regulatory subsector, for a limited period of time, and within a safely circumscribed space that a regulator can adequately supervise. In this way, regulatory sandboxes also allow regulators to “advance regulation through proactive regulatory learning” and in doing so, help them gather knowledge to “find the best means to regulate innovations based on real-world evidence” in order to respond to challenges related to uncertainty and disruption or to develop new regulatory policies.12 Regulatory sandboxes vary in their practical implementation across jurisdictions, reflecting differences in regulatory objectives, legislative contexts, and other factors. Different sandbox models may vary in particular in the extent to which they permit regulatory waivers or other kinds
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