Abstract
Recent EU legislative and policy initiatives aim to offer flexible, innovation-friendly, and future-proof regulatory frameworks. Key examples are the EU Coordinated Plan on AI and the recently published EU AI Regulation Proposal which refer to the importance of experimenting with regulatory sandboxes so as to balance innovation in AI against its potential risks. Originally developed in the Fintech sector, regulatory sandboxes create a test bed for a selected number of innovative projects, by waiving otherwise applicable rules, guiding compliance, or customizing enforcement. Despite the burgeoning literature on regulatory sandboxes and the regulation of AI, the legal, methodological, and ethical challenges of these anticipatory or, at times, adaptive regulatory frameworks have remained understudied. This exploratory article delves into the some of the benefits and intricacies of allowing for experimental instruments in the context of the regulation of AI. This article’s contribution is twofold: first, it contextualizes the adoption of regulatory sandboxes in the broader discussion on experimental approaches to regulation; second, it offers a reflection on the steps ahead for the design and implementation of AI regulatory sandboxes.
Highlights
Regulatory sandboxes emerged in the last decade in the context of FinTech (Allen 2019)
The proposal of regulatory sandboxes appears to be packed in the narrative that law and regulation stifle innovation, are merely reactive, and lag behind the rapid pace of innovation (Bernstein 2006)
The claim that regulation hinders innovation, and regulatory sandboxes are needed to test novel Artificial Intelligence (AI) applications at national level, distracts us from the most important reason why regulatory sandboxes and other experimental regulatory instruments should be used in the context of AI: Experimental legal instruments—despite their imperfections—contribute to the development of evidence-based lawmaking and the continuous reassessment of regulation
Summary
Regulatory sandboxes emerged in the last decade in the context of FinTech (Allen 2019). Regulatory sandboxes can only be used by a relatively small number of eligible entities that are selected for a specific purpose so as to limit the impact of potential risks.Not all private firms will be allowed to “play in the (regulatory) sandbox:” the testing product or service must be appropriate for the sandbox; there must be a need for the creation of a regulatory sandbox (for example, if a technology is not innovative and adequately regulated, this need will not be justified); and candidates should offer guarantees of their suitability to join the sandbox (for example, by submitting a project that fits its goals and is genuinely innovation; fulfilling specific requirements such as being an authorized financial institution in that country) (Buckley et al 2020).
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