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Regulatory Sandboxes – Testing Environments for Innovation and Regulation

Introduction

Regulatory sandboxes are becoming more and more important for Germany as an attractive centre for innovation. Creative companies, public authorities and researchers use them to test what was hard to imagine just a few years ago: for example, autonomous vehicles, drones or ships, new solutions for telemedicine or public administrations. At the same time, regulatory sandboxes help to advance regulation through regulatory learning.

What exactly are regulatory sandboxes?

Regulatory sandboxes enable in a real-life environment the testing of innovative technologies, products, services or approaches, which are not fully compliant with the existing legal and regulatory framework. They are operated for a limited time and in a limited part of a sector or area. The purpose of regulatory sandboxes is to learn about the opportunities and risks that a particular innovation carries and to develop the right regulatory environment to accommodate it. Experimentation clauses are often the legal basis for regulatory sandboxes.

With its conclusions on regulatory sandboxes and experimentation clauses the Council of the European Union has agreed on an according understanding of regulatory sandboxes and emphasized their potential for innovation and future-proof regulation.

Of course, even the most innovative ideas must be compatible with the applicable legal framework. This is why such sandboxes require instruments that provide legal flexibility, for example in the form of experimentation clauses (i.e. temporary rules allowing experiments to be conducted). The German Carriage of Passengers Act shows what such a clause providing scope for innovation and for legal viability might look like.

Experimentation clause contained in Section 7(2) of the Carriage of Passengers Act

“In order to allow for the practical testing of new modes or means of transport, the licensing authority may, upon request on a case-by-case basis, authorise exemptions from the provisions of this Act or from provisions adopted on the basis of this Act for a maximum period of four years, insofar as they do not conflict with public transport interests”.

Such flexibility clauses can also be found in other legislative texts, for example in the “Drone Regulation” (Regulation to Regulate Unmanned Aerial Vehicles) (in German). The more room for manoeuvre is created by experimentation clauses and other instruments, the better the conditions for testing innovative technologies and business models.

Development of a “smart” legal framework

Regulatory sandboxes do not aim to deregulate or reduce safety and protection standards. On the contrary, there are many areas in which there is legal uncertainty and for which meaningful legislation has yet to be created. At the same time, in this age of digital transformation, we must also frequently assess existing rules, which may have been established decades ago. Regulatory sandboxes can help to develop a suitable legal framework, without sacrificing useful and necessary standards.

Ultimately, the primary purpose of using regulatory sandboxes as facilities for testing innovation and regulation is to gain clear regulatory knowledge. The goal here is not only to test digital innovations under real-life conditions, but also to allow legislators to gain knowledge for creating regulation in the future. In which way do rules in certain areas need to be adjusted or designed in order to be able to apply innovations in practice, to facilitate the creation of start-ups and to promote competition without giving up necessary standards? Do we want to permit all new developments? Or do we want to ban everything that is not permitted under current regulations? In most cases, the answer is somewhere in the middle and regulatory sandboxes can help develop an appropriate regulatory framework that anticipates further developments in the future.

So the clear aim is to use regulatory sandboxes not only to create areas for testing new products and business models, but also to actively develop the regulatory environment in such a way that it can keep up with the pace of digitalisation. If we succeed in using them to this effect, this would be an important step towards ensuring that Germany will continue to be successful in the global competition for talents and ideas in the future.

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Our strategy

The regulatory sandbox strategy of the Federal Economic Affairs Ministry

The goal of the Federal Economic Affairs Ministry’s regulatory sandbox strategy is to foster digital innovation and to further develop the regulatory framework.

What results to we expect to achieve by creating regulatory sandboxes? In order to strengthen regulatory sandboxes as a tool to drive digitalisation forward, the Federal Economic Affairs Ministry is pursuing three objectives:

1. Regulatory sandboxes need regulatory leeway

If we want to ensure that regulation does not lag behind innovation, we will need more flexibility and “breathing space” in the future. Experimentation clauses are a key component for shaping the legal framework in an innovation-friendly and future-oriented way. This instrument must be strengthened. One goal of the regulatory sandbox strategy is therefore to give new laws and regulations more flexibility through the increased use of experimentation clauses as well as to improve existing ones.

Against this background, we have developed a BMWi guideline on the formulation of experimentation clauses to support legislative bodies in the creation and further development of legally secure, effective and innovation-friendly experimentation clauses. The guideline describes five steps for the development of an experimentation clause as well as a concrete "toolbox" as a formulation guideline. It is based on a comprehensive expert report by the law firm Noerr on behalf of the BMWi. On this basis the Coordinating Office for Regulatory Sandboxes works closely with relevant ministries to create new experimentation clauses and to improve existing regulation.

The expert report “Regulatory sandboxes - Overview of international regulatory approaches and their transferability into German law” shows which legal approaches to experimentation are used worldwide. Based on this, it examines in detail for France, Denmark and Japan which approaches could help to advance German law. Further expert reports will be published soon.

European law also often plays an important role for regulatory sandboxes. During Germany's Council Presidency, the Council of the European Union adopted conclusions on regulatory sandboxes and experimentation clauses on 16 November 2020. For the first time the EU member states have thus created a common EU-wide understanding of what regulatory sandboxes and experimentation clauses are and what opportunities they offer. The Council encourages the Commission to continue considering the use of experimentation clauses when drafting and reviewing legislation, as well as to evaluate the use of experimentation clauses in ex-post evaluations. Moreover, the member states call for a joint exchange of best practices, on which the Commission is expected to report comprehensively in 2021.

2. Transfer of expertise and networking

We need to reduce uncertainties, fill gaps in information and improve networking and the exchange of information between industry, science and public administration. In the context of many ongoing and planned projects, the same questions are being raised: Is this legally possible? Who should I contact? Where can I find potential project partners? What do I have to consider with regard to state aid and competition law and what about questions of liability and insurance? Who can support me?

Finding answers to these questions takes a lot of time and effort, which is often a reason why innovative and promising ideas are not put into practice.

“Handbook for Regulatory Sandboxes”

Our aim is to fill gaps in information, use synergies and avoid duplication of work. To this end, the Economic Affairs Ministry has developed the “Handbook for Regulatory Sandboxes”, which seeks to enable the relevant stakeholders to ask the right and necessary questions and to help them find answers to them. At the same time, the Handbook provides information on legal issues and describes best practice examples.

“Data protection in Regulatory sandboxes”

Implementing the data protection requirements is often challenging for Regulatory sandboxes. However, it is often underestimated that data protection law provides the user of the law with a range of flexible instruments that allow digital innovations to be tested in compliance with the law. The Federal Ministry for Economic Affairs and Energy therefore provides a practical guide to data protection in Regulatory Sandboxes, which highlights the most important data protection requirements for testing innovations in Regulatory Sandboxes and provides advice on how companies can deal with them successfully. The practical guide is based on an extensive expert report by the law firm Noerr on behalf of the Federal Ministry for Economic Affairs and Energy.


Research report on regulatory sandboxes, online consultation


The Federal Economic Affairs Ministry commissioned VDI-Technologiezentrum GmbH with preparing an expert opinion entitled “Potential and requirements of regulatory sandboxes”. The company worked together with the Munich law firm Bird & Bird LLP to study the matter in depth. The expert opinion initially provides a comprehensive screening of existing projects in Germany which use a regulatory sandbox approach at least in part. On the basis of six case studies, the paper then analyses selected sectors and cases to see what obstacles exist during the implementation process, and also what opportunities and possibilities are presented by the projects. The case studies can be downloaded (in German) from the following links:


- Delivery Robot Hamburg (PDF, 200 KB) (in German)
- Cooperatives eGovernment in federal structures (PDF, 448 KB) (in German)
- Telemedicine in Baden-Württemberg (PDF, 402 KB) (in German)
- Autonomous bus in Bad Birnbach (PDF, 664 KB) (in German)
- SINTEG: Smart energy showcases (PDF, 440 KB) (in German)
- AutoNOMOS Labs Berlin (PDF, 543 KB) (in German)


The contractors have worked from the case studies to draw up guidelines for the creation of regulatory sandboxes. The practicability of this draft (PDF, 967 KB) (in German) was reviewed by the experts in the Regulatory Sandboxes Network via the online consultation. The members of the network were also asked to present their own examples of interesting examples in practice. The results of the research study and the ideas from the Regulatory Sandboxes Network form the basis for the Handbook for Regulatory Sandboxes. A summary of the results of the consultation processes (PDF, 373 KB) (in German) is available as a download.

“Network for Regulatory Sandboxes”

The “Network for Regulatory Sandboxes” is to facilitate the exchange of information and networking between stakeholders and to disseminate information on legal possibilities, future competitions in this field and examples from practice from Germany and abroad. The network can also serve to bring together project partners, for example a start-up with an innovative idea with stakeholders who are keen to experiment. The network’s first meeting was held on 28 August at the Federal Ministry for Economic Affairs and Energy. Furthermore, the existing interministerial working group strengthens networking between the federal ministries.

Regulatory sandboxes as facilities for testing innovation and regulation:

The Federal Economic Affairs Ministry considers regulatory sandboxes as a cross-cutting regulatory policy instrument. In addition, the Federal Economic Affairs Ministry is not only responsible for innovation and digitalisation policy, but also for reduction of bureaucracy and better regulation (in German).

At the same time, the specific areas of application go far beyond the remit of the Federal Economic Affairs Ministry. The 2018 Coalition Agreement (in German) also has the clear goal of advancing/pressing ahead with the development of regulatory sandboxes and testing environments in many subject areas. Close cooperation between the individual ministries is therefore a key prerequisite for the successful implementation of our regulatory sandbox strategy.

In order to facilitate the exchange of information, the interministerial working group “Regulatory Sandboxes" was set up. The inaugural meeting of the working group took place in Berlin on 27 November 2018. There is broad consensus that in times of digital change, regulatory sandboxes are an important and necessary instrument for further developing the regulatory framework and promoting innovation in Germany.

3. Testing regulatory sandboxes in practice

We want to link the testing of innovation and regulation more closely to actual practice and lead the way with positive examples. All this is to show that regulatory sandboxes can make a valuable contribution to innovation in Germany. The aim of regulatory sandboxes competitions is to make outstanding ideas and projects visible and to support them. The BMWi launched the first competition on 2 December 2019, for which companies, public administrations and research institutions could apply. On 26 May 2020, the "Regulatory Sandboxes Innovation Prize" was awarded to nine projects at an online event.

If you have any questions or suggestions, please do not hesitate to contact us by e-mail at reallabore@bmwi.bund.de at any time.

Handbook for regulatory sandboxes

Making space for innovation

The Federal Ministry for Economic Affairs and Energy wants to encourage companies, researchers, policy-makers and administrations to initiate sandboxes together. The handbook provides guidance and real-life examples.

On 23 July 2019, the Federal Minister for Economic Affairs and Energy published a handbook entitled “Making space for innovation”. You can download the complete handbook here.

Chapter 1: Regulatory sandboxes in Germany

Everyone is talking about regulatory sandboxes. But what do people mean when they use the term “regulatory sandboxes”? What fields are they used in? And what role do they play abroad? These questions are considered in Chapter 1.

Chapter 2: Designing regulatory sandboxes

Chapter 2 is a practical guide to regulatory sandboxes. It is addressed to decision-makers in companies, research and administration who would like to set up a regulatory sandbox as a testbed for innovation and regulation. It highlights the main questions and helps to answer them. Real-life examples illustrate the explanations. An initial draft of the guide was produced during the production of the study entitled “Potential and requirements of regulatory experimental spaces (regulatory sandboxes)”. The draft was scrutinised by the experts of the Regulatory Sandboxes Network during an online consultation and then revised on this basis.

Chapter 3: Making regulatory sandboxes possible

In many cases, regulatory sandboxes need regulatory leeway. Experimentation clauses are a key legal tool to create this leeway.

The third chapter starts by explaining what an experimentation clause is and the differences between types of experimentation clause. It also describes the constitutional requirements which arise when new experimentation clauses are adopted.

Finally, it focuses on the specific experimentation clauses needed for the testing of innovative technologies. Examples are provided for four of these clauses to show the experience made so far with using the experimental clauses – and what room for improvement might exist.

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Network for regulatory sandboxes

Become part of our network!

Are you interested in regulatory sandboxes or have you gained experience with this topic as an administration, as a company or within the scope of your scientific work? Would you like to be informed about further developments and exchange ideas with other experts and practitioners?

Then let us invite you to become part of our community: please join our regulatory sandbox network and help to facilitate the creation of regulatory sandboxes and to strengthen Germany’s position as a centre of innovation! Today, our network already consists of more than 400 members.

If you have any questions or suggestions or would like to join our network, please do not hesitate to contact us by email at reallabore@bmwi.bund.de at any time.

Launch in August 2019
A large number of representatives from the business, research and administrative communities attended the event launching the Network for Regulatory Sandboxes in the Federal Ministry for Economic Affairs and Energy on 28 August 2019. The first network event saw presentations of new developments arising from the implementation of the Regulatory Sandboxes Strategy. A high-level panel discussed ways and means to achieve regulation which is open to innovation. Also, presentations from the fields of logistics and innovative mobility provided exciting insights into actual regulatory sandboxes. In addition to the conference agenda, the event also offered plenty of opportunity for intensive discussions between individual participants. The next network event is pencilled in for spring 2020. All members of the network will receive an invitation in good time.

Further information

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