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Regulatory Sandbox
Creating a RegTech ecosystem to promote innovation
Regulations can conflict with innovation, and it often takes years to enact the necessary legal amendments and apply cutting-edge technology to benefit society.
The regulatory sandbox framework provides an environment where participants can demonstrate practical applications of new technologies. It is a proof of concept (POC) conducted with the approval of regulatory authorities. During a limited period, participants can obtain evidence that may facilitate early social adoption.
This initiative originated in the U.K. in 2015. It has now spread to several countries around the world. Japan established a similar system in June 2018 in accordance with the Act on Special Measures for Productivity Improvement. The regulatory sandbox will be included in the Act on Strengthening Industrial Competitiveness from July 2021, which will make this framework permanent.
Initiatives in Japan
In Japan, the Cabinet approved the Future Investment Strategy 2018 in June 2018 to promote growth strategy, including structural reform, one of the three arrows of Abenomics. The sandbox was part of that strategy. It was put forward as a key measure for bold regulatory and institutional reform to advance innovation.
The Japanese version of the regulatory sandbox allows companies to "try first." Between June 2018 and April 2021, there were 20 instances involving some 139 companies in the fields of Fintech, healthcare, mobility, IoT, real estate, etc. that ultimately led to subsequent revisions of laws and regulations, the development of special measures, clarification of interpretations, and frictionless commercialization.
You can find a detailed overview of the framework and available support for foreign and foreign-affiliated companies in Japan at the following web address.
・Regulatory Sandbox - ABENOMICS - JapanGov
Dialogue/Interview
At EY Japan, we believe that the regulatory sandbox initiative will contribute to forming a RegTech ecosystem that promotes innovation, and we enthusiastically support its expansion. To mark the regulatory sandbox framework now becoming permanent, we conducted discussions and interviews with people who have participated directly in the regulatory sandbox. You will get a closer look at how the sandbox works.
*The views expressed in these videos are the views of each speaker and do not necessarily reflect the views of the global EY organization or its member companies.
*Corporate affiliations and titles are current at the time of the interviews.
Dialogue
EY Japan RegTech Leader Keiko Ogawa × Hirohiko Nakahara (Deputy Director-General, Ministry of Economy, Trade and Industry)
EY Japan RegTech Leader, Ms. Ogawa, has been paying close attention to the regulatory sandbox framework even before the cabinet decided to promote the RegTech ecosystem in June 2018. Mr. Nakahara, Deputy Director-General of Ministry of Economy, Trade and Industry (METI), has been closely involved in creating the regulatory sandbox framework in Japan. As the regulatory sandbox is about to become permanent, he spoke about the overall objectives of the program and his thoughts for those who are keen to introduce new technologies and business models in society.
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Participant Interviews
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Teizo Narumi, Founder & CEO
glafit Inc.
“I believe the regulatory sandbox system allows local ventures to take on new challenges. It helps companies to develop new services and products.”
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Taro Ueno, CEO
Sustainable Medicine, Inc.
“I hope that those who apply trial and error when developing new initiatives will use this program to realize agile governance and sustainability.”
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Kazuya Hataka, Founding CEO
justInCase, Inc.
“The regulatory sandbox is a great system when the solution is truly beneficial to users. Such new technologies and business models are hard to reconcile with current legal regulations.”
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Takanori Okuyama
Taisho Pharmaceutical Co., Ltd.
“We started the project with an insufficient understanding of the demonstration plan and related laws and regulations, but our project was approved with the support of the Cabinet Secretariat.”
Related Books
RegTech Innovation
Creating a dynamic new DX society
Written by EY Japan and Nikkei Inc. (SUM Series Team)
(Nikkei Business Publications, Inc., June 2021)
An explanation of the “regulatory sandbox” is also included.
This book focuses on the relative sizes of domestic and international markets considering specific market segments for RegTech, including the opinions of the leaders of the RegTech ecosystem, and examines the reasons for Japan’s significant lag behind Europe and the U.S., in order to explore potential business opportunities. In addition, it unravels the relationship between regulations and technology in a broader sense, and sheds light on the social benefits of creating a new RegTech ecosystem to DX, how governing authorities are currently reacting, and corporate strategies for realizing innovation, including public-private partnerships.
What EY can do
Data Governance & RegTech Innovation Services
We believe that trust in the data and technologies that underpin DX is the key to its success. It is imperative to establish a framework to ensure that data is reliable and to have a solid understanding of the latest technologies.
EY supports such efforts through both data governance and RegTech innovation. Our cross-disciplinary team of compliance, governance and technology specialists will work with you to accurately assess the current situation and identify pain points. We then propose the right technology-based solutions considering the desired results, feasibility and optimal value.