Designing regulatory sandboxes

Regulatory sandboxes are being adopted around the world to pilot new technologies such as autonomous vehicles and FinTech solutions. An article in Policy Design and Practice proposes a new framework to help policymakers design and implement sandboxes more effectively. The framework identifies three types of sandbox functionalities and advocates a deliberative approach in deciding whether a sandbox is appropriate. This considers factors such as the purpose of the legal experiment, the presence of enabling legislation and existing regulatory constraints. 

What are regulatory sandboxes?

Regulatory sandboxes are experimental legal frameworks that enable firms to test innovative products or services under controlled conditions. Existing laws and regulations often prevent firms from engaging in experiments. To promote innovation and allow experimentation, regulators establish sandboxes where firms can propose projects and apply for entry. Successful applicants are granted temporary legal exemptions to conduct limited, real-world experiments within defined boundaries. 

Sandboxes emerged in 2016 when the UK, Hong Kong, Singapore, Malaysia, Abu Dhabi and Australia introduced regulatory sandboxes for FinTech. Participating firms were required to operate within defined boundaries and the sandbox designs varied significantly. For example, some sandboxes assign case officers to applicants to verify eligibility and evaluate and grant exemption requests. Others offer automatic approval if applicants meet eligibility criteria. 

Designing sandboxes

A more deliberate and structured sandbox design approach can enhance benefits for regulators and firms while mitigating potential risks associated with experiments.  

This involves regulators: 

• assessing whether there are grounds for conducting a legal experiment, as firms may need legal derogations to conduct innovative experiments or pilot projects. 
• determining whether experimental legislation is available as this provides the legal foundation for granting exemptions. 
• ensuring that experimental legislation adequately controls and minimises risks to safety and that it provides consumer protection. 

Sandbox functionalities

Once a decision to introduce regulatory sandboxes is made, regulators must determine the sandbox design by selecting functionalities which are aligned with their objectives and goals. The article presents three sandbox functionalities: exploratory, confirmatory, and on-demand. Each functionality addresses specific regulatory objectives. 

• exploratory has the objective of exploring and testing new innovations.  
• confirmatory focuses on affirming and substantiating uses of technology which have already been explored. 
• on-demand fosters innovation and experimentation in targeted sectors or specific use cases required by regulators. 

The three functionalities are not mutually exclusive. A sandbox can combine multiple functionalities to achieve diverse objectives. For example, a sandbox can integrate on-demand and confirmatory functionalities by specifying themes for innovative technologies, while conducting tests to ensure safety and reliability. 

A design framework

The article proposes a general framework for designing and implementing regulatory sandboxes with the following elements: 

• Determine the sandbox’s objective. Objectives can include exploring a new technology, validating a technology or product, addressing specific use cases, or refining regulations. 
• Decide if collaboration with other regulators is required and then define the sandbox’s geographical or virtual boundaries. 
• Establish the entry rules, which include firm eligibility requirements and scope of experiments and define the sandbox scope, with limits on the technology, sector, industry and objectives of experiments. 
• Consider the duration of sandbox experiments and establish monitoring mechanisms and exit rules. 
• Determine transition plans available within the sandbox, which are related to confirmatory functionality. 

The design phase represents the first stage in the sandbox’s life cycle. Once the design is ready, regulators announce a call for participants and evaluate applicants, either on a rolling basis or by cohorts. Successful applicants receive legal exemptions and begin experiments, while being subjected to monitoring requirements and pre-determined exit rules.  

At the end of the experimentation period, firms must exit the sandbox, with three possible outcomes: 

• termination 
• re-apply after amendments to experiments 
• go-to-market approval. 

The bottom line

The article’s deliberative framework offers guidance for policymakers seeking to design and implement more effective regulatory sandboxes. This involves: 

• a decision flow process for introducing sandboxes, based on considerations over the grounds for a legal experiment, the availability of experimental legislation, and the appropriateness of existing regulations 
• determining what functionalities the sandbox should have based on regulators’ objectives and goals: exploratory, confirmatory and/or on-demand. These functionalities can be combined to achieve a greater range of objectives. 

• Designing regulatory sandboxes: a comprehensive framework for aligning functionalities and objectives – Gabriel Kwok Hui Chen and Araz Taeihagh, Policy Design and Practice, October 2025

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