Regulatory sandboxes are a unique solution to prevent government regulations from smothering new technologies and innovations. The programs allow innovative companies to be temporarily exempt from prohibitive regulations until the state can establish an objectively informed regulatory framework for the innovation.

These programs have been adopted in select states as a unique way to encourage business growth and innovation. Although the programs have come in many forms, policymakers have implemented sandboxes across several different sectors.

In a day of big technology companies, regulatory sandboxes provide a regulatory development platform for all companies so that even small innovators with less political and financial capital can have an established framework to present their new innovations to regulators.

This report highlights innovative legislation and policy ideas that would advance such regulatory reform proposals around the nation:

Financial Technology

The financial technology sector was one of the first sectors to utilize the regulatory sandbox model. This type, known as a “FinTech” regulatory sandbox, has become the most widespread type so far and has seen success across several states.

Financial services are rapidly evolving. These sandboxes provide a regulatory framework for companies to develop innovations that increase access to capital, enable unique financial transaction models, and develop tools to build finance into new technology.

Passed into Law:

Arizona (2018), Nevada (2019), Utah (2019), Wyoming (2019), Florida (2020), West Virginia (2020)

Bills Introduced:

Illinois (2019), South Carolina (2019), Texas (2019), Connecticut (2021), Louisiana (2021), New York (2021), North Carolina (2021), North Dakota (2021), Oklahoma (2021)

Blockchain

Blockchain is an emerging technology that has quickly been thrust to the forefront of technological development. Using a highly sophisticated record-keeping system, it has applications for a myriad of industries ranging from banking to logistics.

In order to encourage the growth of this technology, the states of Wyoming and Utah both implemented regulatory sandboxes that included blockchain technology. Wyoming and Utah both opted to include blockchain under the umbrella of their FinTech sandboxes.

However, although many proposed bills have placed blockchain under FinTech, other legislation (e.g., Rhode Island) has opted to specify an entirely separate sandbox for blockchain. This specification is based on the understanding that blockchain has more applications than solely the financial sector.

Passed into Law:

Utah (2019), Wyoming (2019), Hawaii (2020)

Bills Introduced:

South Carolina (2019), Idaho (2021), Louisiana (2021), North Carolina (2021), North Dakota (2021), Rhode Island (2021)

Insurance Technology

Insurance is an extraordinarily complex and dynamic industry. Using insurance sandboxes, innovative businesses have the opportunity to provide insurance services that might be outside of the status quo. By having the ability to offer innovative insurance, companies can explore ways that would help them better serve their customers.

Passed into Law:

Kentucky (2019), Vermont (2019), Utah (2020), South Dakota (2021), West Virginia (2021)

Bills Introduced:

New Hampshire (2020), Louisiana (2021), North Carolina (2021)

Legal Services

The state of Utah’s Supreme Court first implemented a legal services sandbox in 2020. Over the last year, the program has seen great success, being utilized by non-profits, non-traditional legal services, and the use of technology for legal services.

According to a recent report, these innovators have provided legal services to hundreds of individuals, and there has not been a single complaint from consumers or entities. In 2020, California also introduced a legal sandbox through its bar association.

Implemented:

Utah (established in 2020 by administrative order of the Utah Supreme Court)

California (established in 2020 by the state bar association)

Agriculture Technology

Agricultural technology has immense potential as a catalyst to grow the industry, increase profitability, and increase efficiency. Self-driving tractors, drone crop analysis, DNA soil sampling, and other innovations will be part of this dynamic transition. In recognition of this, the state of Mississippi was the first state to propose a regulatory sandbox to promote agricultural innovation.

Bills Introduced:

Mississippi (2021)

Digital Medical Technology

Digital medical technologies carry the immense potential to provide health care services by harnessing the power of technologies such as telehealth, mobile apps, artificial intelligence, and wearable devices to deliver higher quality services. The state of Wyoming passed a law implementing the nation’s first and only digital medical technology sandbox.

Passed into Law:

Wyoming (2019)

Energy Technology

Energy technology is one of the fastest-growing sectors in the country. As worldwide energy demand continues to rise, the need to integrate innovative technologies into the energy sector has increased. In recognition of this, Mississippi was the first state to have an energy technology sandbox introduced in the Legislature.

Bills Introduced:

Mississippi (2021)

Property Technology

The innovative applications for technology in the property sector are immense. Some key technologies being used include satellite mapping and surveying, virtual reality, blockchain, and artificial intelligence analysis of market conditions.   

In 2019, the Arizona Legislature passed a bill that established a property technology sandbox. This is the only such program in the nation, making Arizona the friendliest state in the nation for property technology innovators.

Passed into Law:

Arizona (2019)

General Sandbox

In order to facilitate innovative technology developments, regardless of industry, some states have looked at the prospect of general regulatory sandboxes. The general sandbox program provides a more comprehensive innovation environment that frees up businesses to explore multiple innovations across different sectors.

In 2021, after the success of its multiple industry-specific sandboxes, Utah was the first state to establish a general sandbox program. This program came after passage of the state’s several industry-specific sandboxes. This has immense economic potential for Utah as innovative start-ups look to open up in Utah. Other state legislatures have introduced general sandboxes.

Passed into Law:

Utah (2021)

Bills Introduced:

Mississippi (2021), Tennessee (2021)