Almost every president since Jimmy Carter agrees on one thing: The United States has an overregulation problem.
Between 1950 and 2021, the U.S. Code of Federal Regulations grew from 9,745 pages to 188,343 pages. This proliferation of overbearing government restrictions creates multiple negative outcomes, including decreased choices for consumers and increased costs for both proprietors and customers. In emerging industries, it also sometimes prevents innovation before it can begin.
One increasingly popular solution, the regulatory sandbox, temporarily limits some regulations and fees the government imposes on emerging services or products. Regulators oversee the individual project and address risks more specifically, giving innovators guidance and legal protection while still providing consumers redress if harm arises.
This set of training wheels prevents some rules designed for older technology from being applied to new industries where they may not be appropriate or necessary, allowing a controlled trial period for businesses, consumers, regulators, and legislators to assess product success and the need for restrictions. Like a physical sandbox, it provides a safe environment for creators to “play” with tools, without fear of permanent damage.
The concept is relatively new, having first appeared in the United Kingdom just a decade ago. Because of this, most people will need more information to help them decide whether to support a sandbox program. Although rules across regions vary, here are a few answers to basic questions.
Is It The Technological Wild West?
No. The Mercatus Center compares a company’s permission to participate in a regulatory sandbox to a learner’s permit, with legal parameters and safeguards. Like a new driver, an applicant has to prove capability prior to receiving authorization, then remain under supervision throughout the trial.
The regulatory body limits legally protected activities, in no way providing a free-for-all pass. This often involves No-Action Letters (NALs), which specify exactly what steps participants can take without facing legal action. If they act outside those boundaries, they face forced withdrawal from the project.
Is It A Widespread Program?
Yes. Currently, 14 states have a sandbox initiative, with most other states considering adopting one. The states already involved are primarily those near Utah, a major force in the movement, and a smattering located farther east, including Florida. (Notably, California has thus far declined to be included, which may well disadvantage the home of Silicon Valley in its competition among the states.)
Countries on every continent around the globe, from Canada to Kenya, also use this system in one form or another. Although the term has not made its way into the vernacular, the practice itself is common.
Who Can Use it?
In the digital age, the applications of regulatory sandboxes reach nearly everywhere. From its narrow origins in fintech (financial technology), it has expanded to areas such as health care. For example, because artificial intelligence (AI) has spread to so many industries, suspending outdated regulations allows innovation in numerous fields. AI works by quickly “learning” from a constant inflow of data, so outdated laws requiring permission for each new alteration bring innovation to a near halt.
In 2024, multiple states implemented a moratorium on restricting AI use in banking. Financial institutions can try the new AI assistance and determine if it works without serious hiccups. In health care, designers may soon be able to create AI-assisted medical imaging devices without approval for every new minor adjustment.
How Can I Get Involved?
If your state has already erected a sandbox structure, your input can help guide the creative process. Consumer suggestions and feedback help everyone concerned. If you hope to use the sandbox yourself, be prepared with detailed ideas and a firm plan to present in your application.
If you would like to see a sandbox in your state, make yourself heard. As noted, most states have at least considered this option, and legislators need to know your opinion on it. You have already benefitted from these programs without even realizing it, and you can help them to grow.