International Policy Digest: Regulatory Sandboxes: How a British Invention is Fueling Tech Innovation Globally

Published by the International Policy Digest

By its nature, government is always playing catch-up. First, a bold innovator pioneers some new technology. Then, some time later, the state appears, chasing after it with a huge butterfly net called ‘regulation.’

The movement of government is slow and haphazard. It often restricts or disincentivizes the development of new products and services which could enhance our quality of life in various ways, for fear of the hand of the state emerging to crack down on pioneering technologies because of often exaggerated fears about safety, or health risks, or monopolies, or any number of other things.

Enter regulatory sandboxes. First developed by the UK’s ICO (Information Commissioner’s Office) for use in the world of British fintech, a regulatory sandbox is a cordoned-off space in which eligible companies are allowed to do business free from red tape. Certain key rules like consumer protection stay in place but other than that, entrepreneurs and business leaders are given a safe, controlled environment in which to indulge in uninterrupted innovation and growth.

The idea may have germinated in the niche, technical regulation of the British financial services industry, but it quickly caught on. Around the world – and in the U.S. in particular – lawmakers at both the state and federal level have spent so many decades cushioning every industry within reach in endless red tape that now, rather than tinkering with the law and trying to reform regulation, often the best way to unleash the free market is to sidestep regulations altogether by using regulatory sandboxes.

Across the U.S., the regulatory sandbox movement is in full swing. Since 2018, around a dozen states have implemented some kind of regulatory sandbox for a wide range of industries including tech, finance, transport, and energy. More are on the way, such as this one in Pennsylvania. The idea is gaining traction around the world, too, with lawmakers in countries including RwandaCzechiaZimbabwe, and Serbia throwing their weight behind various forms of regulatory sandbox.

It’s a matter of if, not when, the remainder of America’s politicians cotton on to the limitless potential of regulatory sandboxes to transform our lives. It may have been a British invention to begin with, but it could yet make an enormous difference to American politics and industry by giving innovators breathing space to try out their potentially world-changing ideas and making clear to entrepreneurs and investors from across the globe that the U.S. is the right place for them to focus their attention.

Regulatory sandboxes are one of the most important fronts in the ongoing battle for innovation and the free market. In a world of nanny statism, excessive regulation, mission creep, and government overreach, regulatory sandboxes represent a glint of light, a hint of hope that the future might yet include a fresh embracing of the wonders innovation can bring.

Have you ever tried to read a large quantity of the law? Most new policies or regulatory developments are so complicated you have to set aside several hours to break down the dozens, if not hundreds, of pages of inscrutable writings, and even then, without extensive specialist education and experience, it will be very difficult to understand, especially when it comes to complicated areas of regulation like those developing industries – tech, finance, and so on.

Regulatory sandboxes flip the market-state dynamic completely on its head. No more does the government need to hurriedly and haphazardly respond to innovations after they happen and end up slapping them down retrospectively with overregulation. Instead, thanks to regulatory sandboxes, government actors can rest assured in the knowledge that consumers are protected, but no one is missing out on cheaper or better products or services because of them.

Lawmakers across the U.S. have nothing to lose by working towards more regulatory sandboxes. They can achieve astounding results with relatively little cost by creating these hubs for innovation, investment, and progress, allowing companies to sign up as the UK did back in 2014 and simply sitting back and letting the free market do the rest of the work. What are we waiting for?