Regulating AI: Challenges and the Way Forward Through Regulatory Sandboxes

Abstract

Financial industry was the first filed where it became clear that we needed a new type of regulation, an evolutionary and anticipatory approach that can at least stand chance to mitigate the new risks posed by disruptive technologies such as artificial intelligence (AI). This approach took the shape of various tools, none of which has showed more prominence than the regulatory sandboxes. This rather young approach to regulation spread across various sectors and jurisdictions from FinTech to privacy and healthcare. The European Commission recognised the potential of the regulatory sandboxes as an increasing compliance mechanism but also as a way to facilitate innovation and thus included them as part of the draft regulation on artificial intelligence (the AI Act). In this article we analyse the potential of the regulatory sandboxes for regulating AI in the format envisioned in Article 53 and 54 from the draft AI Act and the challenges this approach could face based on the experience from earlier regulatory sandboxes involving AI products or services. We also aim to suggest some tailor-made solutions that would mitigate potential disadvantages of the regulatory sandboxes for AI, including how to balance the emerging ‘Innovation Principle’ and the protection of human rights.