Balancing innovation and control: The case of regulatory sandboxes in shaping the future of emerging technologies

  • 11 Sep 2023
  • 3 Mins Read
  • 〜 by Brian Otieno

A few weeks ago, the Worldcoin saga reverberated across Kenyan circles, characterised by disjointed communication from relevant government bodies, regulators revoking their licenses, and a significant information deficit among stakeholders and the general public. This painted a picture of the dire and ongoing situation.

While there may be valid concerns about the operations of emerging technologies such as Tools for Humanity, the economic advantages that come with them cannot be underestimated. For instance, the revelation that KSh. 2.5 billion was injected into the economy serves as a stark indicator of how emerging technologies have the potential to transform economic fortunes. The question of irregularity as portended by the DCI could be a longshot as these amounts were not in any way suspicious. Emerging technologies will improve the economic tides and the sooner we accept this new world order the better.

Suffice it to say that Worldcoin’s Orb Technology is indeed an eye-opener!

More importantly, to realise the full economic returns of emerging technologies, responsive and effective regulation is essential. The damning admission by the Communications Authority Director-General, Mr Ezra Chiloba, during the public inquiry attests to this. In his contention, Mr Chiloba pointed out that not only is CA faced with the challenge of legal loopholes but also the existing terrain is riddled with cases of overlapping regulatory mandates among agencies, hindering a coordinated response.

From a legal and policy standpoint, the fundamental question would be, how did we get ourselves here, and is there anything that we could do as a proactive measure going forward? In some quarters, arguments, proffered by conservative moralists, is that a ban is the best solution. While bans could prove effective to an extent, the world is continuously evolving, and technology is bound to continually disrupt human life. An approach that is akin to the proverbial phrase ‘heads buried in the sand’ is not only preposterous but economically disadvantageous.

The panacea to the ever-spiralling nature of the world in the digital age is embracing regulatory sandboxes. A regulatory sandbox connotes a virtual concept akin to a testing ground set up and overseen by a regulatory organ, through which participants can test their products or services, mostly borne out of innovation, in a controlled setting and for both a defined purpose and period.

The increasing demand for a flexible and dynamic approach, particularly the design of regulatory sandboxes has largely been driven by technological innovations and the central role of data in such innovations, alongside the increasing complexity of such developments. The unprecedented COVID-19 pandemic accelerated these developments, making it a pressing and urgent need for flexibility in regulation and data privacy policy.

To be effective, regulators need to nuance the aims of coming up with regulatory sandboxes to greatly focus on the promotion of innovation, driving and encouraging competition, pushing for greater financial inclusion prospects, and policy prototyping. These objectives are geared towards both encouraging and enabling economic activity as well as opening countries to potential inward investment into their economies.

Additionally, regulatory compliance requirements may turn out to be burdensome for entities, more so those within the Micro, Small and Medium Enterprises (MSME) sectors, which may hamper growth, and to a large extent in developing countries such as Kenya. For the promotion of development, regulators need to embrace regulatory sandbox environments to create regulatory waivers and modify existing legal and regulatory frameworks for products and services, as they pilfer into the market.

For regulatory entities, a sandbox approach allows them to try and test different approaches on regulatory and policy concerns, more so as a way of responding to and addressing legitimate concerns around cybersecurity and data privacy, without curtailing development in this digital age. Regulators therefore need to open themselves up to regulatory sandboxes but apply them smartly, remaining constantly aware of their potential impact on data privacy and consumer protection.