“Regulatory sandboxes” are programs that enable entrepreneurs to test new products and services in the market while maintaining close rapport with regulators. Sometimes, entrepreneurs’ regulatory obligations are temporarily reduced to provide authorities with an opportunity to understand the technological environment and design and enforce more effective, tailor-made safeguards.

Regulatory sandboxes have proven beneficial across a broad range of sectors undergoing digitalization over the past 15 years, including finance, energy, health, transportation, and legal services. However, their effectiveness—for regulators, entrepreneurs, and society at large—depends on careful design, engineering, and management. They are also resource-intensive, so their returns on investment must be carefully assessed.

In February 2020, the European Commission published a White Paper on Artificial Intelligence. In response, TFS published a memo titled “Experimentation, testing & audit as a cornerstone for trust and excellence,” advocating for numerous changes, including the addition of regulatory sandboxes.

When the European Commission’s proposed AI Act was unveiled in April 2021, regulatory sandboxes were included as a measure to “reduce the regulatory burden and to support small and medium-sized enterprises (SMEs) and start-ups.” Details related to their design, however, had not yet been articulated. To aid in clarifying these concepts, in August 2021, TFS published a memo titled “Trust in Excellence & Excellence in Trust,” which put forward specifications for testing and experimentation facilities, national- to EU-level information flows, and incident reporting to foster innovative and agile governance.

In February 2022, during deliberations between the European Commission and the French Presidency on the design of the sandboxes system, TFS published “Sandboxes without the quicksand: making EU AI sandboxing work for regulators, entrepreneurs and society,” which lays out a detailed, three-phase rollout plan, aimed to provide monitored regulatory flexibility for entrepreneurs to “live” test their innovations on the market, providing regulators with a greater understanding of the cutting-edge technologies, value chains, and business models, and to provide customers with the confidence to use or do business with disruptive technology providers.

In July 2022, regulatory sandboxes were further institutionalized as an EU policy tool in a communication of the European Commission, The New European Innovation Agenda. We welcome the European Parliament’s decision of June 2023 to carry our recommendations regarding the design and operationalization of sandboxes into trilogue negotiations. We remain available to contribute independent expertise and opinions on the development of regulatory sandboxes, among other innovative elements of the EU AI Act.