Sandboxing, Fixing The Plane While Flying, Regulating Innovation.
Premature regulation kills innovation, but also unregulated perilous innovations can be catastrophic. How do you find a balance?
The goal of a 21st-century regulator is beyond regulation is to facilitate things to happen in the safest but efficiently and productive manner. Regulations can be barriers to innovation. For example, when the cost of compliance is high, the testing environment is not available, and there existing policies irregularities. The chances of innovative solutions flourishing are next to none unless it has nothing to do with the existing regulatory frameworks. The goal of the regulator is to facilitate and not to police — Doc. Faustine Ndugulile, Minister of ICT, The Government of The United Republic of Tanzania. With the right systems and structures in place, regulatory agencies can be the engines to drive innovations in emerging startup ecosystems.
Adoptions of the agile approach in regulating is not a new thing. In a paper by CGAP, “How to Build a Regulatory Sandbox”, more than 60 jurisdictions worldwide have announced regulatory sandboxes. Regulatory Sandboxes looks like a default fallback plan for governments and regulatory bodies looking to improve the regulatory environment in the country. This is good news because Sandboxes provides an environment to test new products, technology and business models under close regulation of the regulator. Traditionally designed for the financial sector regulators, Regulatory Sandboxes are a useful tool in other technology sectors. There is an already increased interest in adopting the Sandbox approach in healthcare technologies. In the paper published two months ago, The Sandbox Approach and its Potential for Use in Health Technology Assessment, the author shows how the technology can be adopted in the sector. In any situation that requires managing risks from innovation outcomes with potential threats to consumers, you can adopt regulation sandboxes.
When Should You Adopt Innovation Sandboxes
There are different ways to adopts agile regulatory approaches. Sandboxing is one of those approaches but not the only one. Agile Monitoring, Evaluation and Learning (Agile MEL) is one of those approaches. At the same time, innovation is designed, tested and deployed through series of stakeholders “retrospective” meetings to investigate what works and what doesn’t. In partnership with UNFPA, Sahara Ventures has adopted this approach in the Amua Accelerator program for innovations designed for the Sexual Reproductive Health sector.
A Regulatory Sandbox is a tool for developing evidence about how a new product, technology, or business model (innovation) works and the outcomes it produces. Evidence gathering can help assuage (or confirm) regulatory concerns about the impact of innovations, allowing beneficial innovations to reach the marketplace — CGAP.
Other approaches for agile approach in the regulation include; working with innovation hubs, “Test and Learn” approach, “Wait and See” approach, or simply revisiting the rules and change them immediately after you realize they are acting as obstacles for further growth of innovation in the sector. Keeping in mind their inexistence doesn’t affect consumers of the innovation. , some regulations are no good to anyone. You don’t need a Sandbox to fix them. It would be best if you had regulatory reforms. The goal is to focus on what happens in the marketplace—the first initial contact between the innovation and consumers. Don’t stop people from generating ideas or researching on them (including rapid prototyping). Start to pay attention when they engage actual consumers for testing or adoption. See the model below building from Rothwell’s works in 1994. I adopted the framework to help describe the adoption process.
For example, the adoption of Mobile Money in Tanzania, naturally, Tanzania adopted the “Wait and See” approach. With the “Wait and See” approach, you carefully observe the innovation when it is still at its infant stage without placing your objectives, agenda, protection, integrity and stability at risk by not taking action. This approach has been adopted to regulate Distributed Ledger Technologies (DLT) and Crypto Assets in matured markets. It is an approach adopted by European Securities and Markets Authority (ESMA). The watchful approach works when you know what you are doing, and measures can handle negative outcomes.
You adopt innovation sandboxes when you want to actively incentives the growth of a certain product, technology, or business model that will have a massive impact on society. The fact that isn't easy to know which of those innovations will eventually reach that stage. Hence it would help if you created a conducive environment for as many innovations as possible to flourish by adopting other measures of promoting innovation adoption. Sandboxes are not appropriate in all circumstances. They require a considerable amount of time and resources to execute them.
Regulatory Sandboxes are not just documents showing how the regulator works or plans to regulate a certain sector. Without clear objectives, why are establishing them? Chances are, they might create more harm than good. According to CGAP, regulators mostly cites three objectives for their Sandbox; Promote Innovation and/Or Competition, Address Regulatory Barriers to Innovation, and Learn About Development in Marketplace. The important question is, why are you adopting the Sandboxes?
The priority incentive for most developing markets, including Tanzania, in adopting the sandbox approach is to address regulatory barriers to innovation. Tanzania Startup Association has also championed this. If you address the barriers, chances are you will promote innovation, and in the process, you will learn from market behaviours once the innovation is in the market. All key ecosystem stakeholders must work together to design and implement the sandboxes to ensure they are not becoming obstacles but rather catalysts for innovations.
Jumanne Mtambalike is an innovator, entrepreneur, and technology enthusiast who is optimistic about the future of Africa. Follow me on Twitter @Afruturist