Regulatory sandboxes are a relatively recent innovation in regulation (with the first one being launched by the UK Financial Authority in 2015). Since that time, they have spread rapidly in the fintech sector. The EU’s new Artificial Intelligence Act has embraced this new tool, making AI regulatory sandboxes mandatory for member states. In its most recent budget, Canada’s federal government also revealed a growing interest in advancing the use of regulatory sandboxes, although sandboxes are not mentioned in the ill-fated Artificial Intelligence and Data Act in Bill C-27.
Regulatory sandboxes are seen as a tool that can support innovation in areas where complex technology evolves rapidly, creating significant regulatory hurdles for innovators to overcome. The goal is not to evade or dilute regulation; rather, it is to create a space where regulators and innovators can explore how regulations designed to protect the public should be applied to technologies that were unforeseen at the time the regulations were drafted. The sandbox is meant to be a learning experience for both regulators and innovators. Outcomes can include new guidance that can be shared with all innovators; recommendations for legislative or regulatory reform; or even decisions that a particular innovation is not yet capable of safe deployment.
Of course, sandboxes can raise issues about regulatory capture and the independence of regulators. They are also resource intensive, requiring regulators to make choices about how to meet their goals. They require careful design to minimize risks and maximize return. They also require the interest and engagement of regulated parties.
In the autumn of 2023, Elif Nur Kumru and I began a SSHRC-funded project to explore the potential for a privacy regulatory sandbox for Ontario. Working in partnership with the Office of Ontario’s Information and Privacy Commissioner, we examined the history and evolution of regulatory sandboxes. We met with representatives of data protection authorities in the United Kingdom, Norway and France to learn about the regulatory sandboxes they had developed to address privacy issues raised by emerging technologies, including artificial intelligence. We identified some of the challenges and issues, as well as key features of regulatory sandboxes. Our report is now publicly available in both English and French.