Is the innovation sandbox a regulatory multi-tool?

Regulatory sandboxes are all the rage. They were piloted in fintech first, in 2016, by the United Kingdom’s Financial Conduct Authority. They have proliferated wildly since. As of November 2020, 73 sandboxes were in operation, in 57 jurisdictions around the world, in fintech alone. Sandboxes have also been launched in other fields including energy regulation, drug approvals and health policy, autonomous vehicles, and innovative technology generally. Now, the sandbox concept has moved into the staid realm of legal services regulation. Does this make sense? What, exactly, are we transplanting when we move the sandbox concept out of fintech and into other arenas?

In our new paper, we examine the new phenomenon of the legal innovation sandbox. We survey the sandbox concept’s emergence in fintech and, now, as extended into legal services and regulation. Ultimately, our unintuitive claim is that the sandbox regulatory model may actually be better suited to making positive changes in the legal services arena than it is in the fintech arena in which sandboxes originally developed. However, as with so many things, success will come down to how well a sandbox is implemented.

Significantly, sandboxes – as a product of the financial regulation context from which they come – foreground market-oriented mechanisms and techniques rather than the non-market normative commitments we tend to see in some other regulatory arenas. Our paper pulls out the key normative priorities and assumptions that underpin the sandbox concept as it developed in fintech: that innovation is beneficial almost by definition, that consumer choice and market preferences can be counted on to winnow out ‘bad’ ideas, and that a private sector-driven strategy based on lifting ‘regulatory burdens’ is an effective way to advance the public interest. These assumptions, which are fairly mainstream in financial regulation, are unfamiliar if not alarming when transposed to legal services regulation.

The Solicitors Regulation Authority of England and Wales launched the legal sector’s first sandbox in 2016, expanded and reconfigured since as the Lawtech Sandbox. In August 2020 the Utah Supreme Court, with the support of the Utah State Bar, established the first North American sandbox for innovation in legal services. The Law Society of British Columbia followed with its own sandbox in November 2020, and several other North American state and provincial regulators are considering them. What are these legal service regulators hoping to achieve through a legal innovation sandbox? Why do they believe the sandbox is the right tool for the job?

We see four important assumptions at work: first, that innovation in legal services (including products, practices, and business models) is actually something that should be pursued. This observation may seem trite. In fact, it borrows unfamiliar, innovation-friendly assumptions from a very different regulatory space. It is a significant and underappreciated move, relative to how the legal profession has traditionally understood its obligation to protect the public interest. Second is the assumption that legal innovation sandboxes should be promoted as a matter of public policy, and public regulatory resources allocated to them, because innovation in legal services promotes the policy objective of increasing access to justice. In other words, the sandbox strategy should be preferred to, for example, more direct regulatory responses (eg, mandating that lawyers provide more pro bono hours) or more public funding (eg, funding legal aid regimes better or even ‘socializing’ legal services, as the UK and Canada long ago socialized healthcare). One likely unspoken assumption here is that the sandbox is promising because it allows non-lawyers to offer legal services notwithstanding the statutory monopoly that lawyers otherwise enjoy.

Third is the assumption that a sandbox will enhance access to justice specifically by freeing market forces to operate in legal services, thereby increasing consumer choice. Like the emphasis on innovation, this emphasis on the mechanisms of consumer choice and market competition is a new transplant into legal services regulation. We know the notion of ‘consumer choice’ is reductive. All the same, we argue that making more choices available to people who currently lack choice is a legitimate objective. Sandboxes are still regulatory spaces that can impose consumer protection safeguards; they are not free-for-all. The fourth assumption must be that the rule of law trade-offs that regulatory sandboxes require either can be mitigated or are justified, at least on a temporary basis, to advance the objectives above. In this context, the details of how a sandbox is designed are clearly crucial.

How can legal services regulators design a legal innovation sandbox that stands the best chance of achieving its access to justice objectives? The paper’s second half draws on global experience and scholarship to develop a roadmap for designing and running an effective sandbox. We describe the sandbox process as a journey in four phases: application, preparation, experiment, and authorization. We evaluate common application criteria from the fintech context, including ‘innovativeness’ and the applicant’s ‘need’ to have a ‘regulatory burden’ lifted. We consider discrete aspects of implementation, including the kinds of regulatory relief instruments, scale limitations, risk mitigation strategies, reporting and evaluation requirements, and insurance requirements a sandbox administrator may choose to impose. We assess common sandbox exit and post-sandbox regulatory mechanisms. We close with some final considerations for operating an iterative, equity-aware, and robust sandbox that has the potential to generate positive change in the legal services sector, without losing sight of regulatory priorities including consumer protection and the rule of law.

Innovation sandboxes are not a regulatory multi-tool. There is no such thing. Sandboxes cannot be an all-purpose panacea for what ails justice, access to justice, or the legal profession in North America. However, we argue that sandboxes can be promising in an area, legal services regulation, that is conceptually and normatively far removed from the fintech context in which they arose. Thoughtful and effective implementation will be essential to ensuring that they can foster legal innovation, advance the public interest, and take meaningful steps to address the access to justice crisis.

Cristie Ford is a professor of law at the Peter A. Allard School of Law in the University of British Columbia.

Quinn Ashkenazy is a Juris Doctor (2022), Peter A. Allard School of Law, University of British Columbia.