Investigator:
Cristina Poncibò

Abstract:

A regulatory sandbox is a framework set up by a regulator to allow small-scale, live testing of innovations by private companies in a controlled environment under the supervision of the regulatory authority. Regulatory sandboxes gained prominence in the financial services sector (‘fintech’), but have since expanded to a wide range of sectors, including transport (drones, autonomous vehicles), energy, health (mobile health apps), and the ICT sector itself. Additionally, the European Blockchain Partnership is planning a pan-European regulatory sandbox (2021-2022).

In particular, the proposed research focuses on EU and US experiences and methods in designing and managing these tools and relies on a comparative and interdisciplinary approach. As of January 2020, seven regulatory sandboxes operate in the EU and many more have been approved but not activated or are under discussion. The joint report (2019) of the European Supervisory Authorities (ESAs) on innovation facilitators published comments on the five regulatory sandboxes active in the EU at that time (Denmark, Lithuania, Netherlands, Poland, United Kingdom) and it clarifies that all the competent authorities declared that their regulatory sandboxes followed the statutory objectives of contributing to financial stability, promoting confidence in the financial sector and protecting consumers.

Scholars in competition law have not fully explored the relationship between competition law and regulatory sandboxes, while regulators assume that sandboxes promote – in principle – both innovation and competition between companies. Generally, by developing sandboxes, EU-US authorities are trying to overcome the failures of traditional regulation, especially with respect to banking and financial services. The debate on the relationship between competition and regulation has acquired a leading role in the relevant literature. In this respect, recurrent questions need to be addressed, i.e. can we consider competition law enforcement an alternative to regulation or are the two of them close relatives that should coexist? Under what conditions should competition law be preferred over regulation? What is the level of distortion of competition that necessarily requires ex ante regulation? Sometimes different objectives pursued by regulation and by competition policies cause tensions between the two, but actually in most cases the instruments of competition and regulation are complementary. One needs to consider that ex ante regulation can reduce ex post competition issues, but it will not exclude it. The contrary does not apply: under certain conditions, a market can rely only on competition law – without the need for regulation. However, when a structural competition problem persists, regulation is indeed necessary. The shift towards experimentalism should be considered an interesting development with respect to the past, having shown a tendency toward over-regulation to preserve the internal market in the EU. However, this approach does not necessarily represent a novelty where the EU acquis primarily concerns the ex-ante regulation of consumer contracts. In light of the comparative analysis developed, the paper concludes by pointing out how the emergence of policy experimentalism in the field is changing the way competition law is applied in the relevant market for fintech services.

Thus, the research questions the theoretical background of this approach in a comparative perspective (including EU, US and selected cases) and, specifically, its impact in the field of competition law. Such an approach applies the focus from ex post enforcement to ex ante regulation, assigning to regulators the role of market gatekeepers and finally granting a prominent role to consumers who join these laboratories.