Sandbox Fictions

Regulatory sandboxes are designed to give firms space to offer novel products and services to consumers on a trial basis, under an interim, tailor-made regulatory regime. Ideally, this leaves regulators better placed to understand how rules ought to be modified to accommodate new, socially beneficial offerings on a more permanent basis. But little is known about sandboxes’ implications for consumers. Will they reduce barriers to entry for innovative offerings that do a better job of serving consumer needs? Or will they lead regulators to compromise on consumer protections, allowing low-quality or even fraudulent offerings to flow into the markets they oversee? This article sheds light on one area where sandboxes have developed enough of a track record that we can start to explore these questions. Canadian securities regulators relied heavily on sandboxes to develop their approach to regulating the cryptoasset sector. Their experience highlights how, contrary to conventional wisdom, sandboxes and mainstream regulation do not always exist in isolation from one another, with clearly defined boundaries and distinct purposes. To the contrary, this article illustrates the boundaries between sandboxes and mainstream regulation can be deeply blurred. The article considers what implications this insight might have for the design of sandboxes in other fields of regulation.