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Regulatory Sandboxes – Testing Environments for Innovation and Regulation


With the process of digitalisation moving ever further forward, new technologies and business models are making their way into many areas of the economy and life faster than ever before. Such innovations offer a vast range of opportunities, but they often also have major effects on consumers, companies and society, which are difficult to assess in the short term.

What exactly are regulatory sandboxes?

Regulatory sandboxes are facilities for testing innovation and regulation which enable digital innovations to be tested under real-life conditions and experience to be gathered. Such real-world testing environments are operated for a limited period of time and across a set area and are intended to allow for the testing of new technologies and business models, which are only partially compatible with the existing legal and regulatory framework. 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.

Regulatory sandboxes, living labs and testing environments

The concept of a regulatory sandbox and other similar concepts are subject of ever greater debate. Despite intensive discussions and numerous scientific papers on this subject, there is no uniform definition of these concepts. It is therefore important to develop a common understanding of regulatory sandboxes that is in line with the Regulatory Sandbox Strategy of the Federal Ministry for Economic Affairs and Energy. Accordingly, regulatory sandboxes combine three elements as shown in the diagram: testing within certain limits, the use of legal room for manoeuvre and active regulatory learning.

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 and exemptions are key components for shaping the legal framework in an innovation-friendly and future-oriented way. These instruments 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.

At the same time, we need to ensure that better use is made of existing clauses. How must these clauses be designed to allow the greatest possible flexibility while ensuring regulatory sandboxes are implemented in a legally compliant manner? And on what legal level must or can they be established in order to create sufficient flexibility? Is it possible to incorporate a “general clause”? Legal opinions are already being prepared to help answer these questions.

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.

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

In implementing our own projects, 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. Regulatory sandbox competitions are intended to take up and implement ideas from industry. The first competition will be launched by the Economic Affairs Ministry in the autumn of 2019.

“Regulatory sandboxes for the energy transition”

Parallel to the cross-cutting initiative presented here which aims to strengthen regulatory test beds, the Federal Economic Affairs Ministry has created a new funding pillar/strand of funding in the 7th Energy Research Programme, which is entitled “Regulatory sandboxes for the energy transition”. Our goal is to accelerate the transfer of technology and innovation from research stations to the energy market by means of implementing large-scale, system-oriented demonstration projects combined with sustainable business models.

A competition for ideas has been launched in the context of regulatory sandboxes for the energy transition: (in German)

In addition, there is another programme entitled “Smart Energy Showcases – Digital Agenda for the Energy Transition” (in German) which has already been set up by the Federal Economic Affairs Ministry to address the technical, economic and regulatory challenges of Germany’s energy reforms through using experimentation clauses.

If you have any questions or suggestions, please do not hesitate to contact us by e-mail at 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 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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