The EU is building “Virtual Worlds regulatory sandboxes”. But what are these instruments, why are they in vogue, and what can we expect from those created to test metaverse tech?
A Policymakers’ Innovation
A “regulatory sandbox” is a simulated policy context where businesses test products for a limited time under the supervision of regulators before entering the market.
Policymakers use sandboxes to inform existing or future regulations. Meanwhile, businesses may submit their activities for monitoring in return for legal clarifications, relationships with regulators, and support for compliance with rules.
In some cases, regulators provide derogations to existing laws through an “experimentation clause”.
Sandboxes work best in sectors prone to disruptive technology. Half of the 40 cases of EU regulatory sandboxes gathered by the Slovenian Presidency at the end of 2021 were in the finance or transportation sectors. As of 2023, the EU Digital Finance Platform is tracking 14 fintech (financial technology) sandboxes across 12 EU countries.
The Experimental Toolbox
“Regulatory sandbox” became a buzzword during the negotiations around the AI Act (2021-2024)—the bill obliges each EU member to set them up. However, sandboxes remain an enigma due to poor communication over what they are and a lack of real-world case studies.
Despite a big song and dance by the Spanish Presidency of the EU when it launched the first AI sandbox in 2022, there has been no news of its progress (results were due in 2023).
Another reason for the confusion is that sandboxes can be conflated with other experimental tools regulators may use, such as testbeds and living labs.
Virtual worlds regulatory sandboxes are on the way
Action 6 of the European Commission’s strategy on virtual worlds states the executive will “promote the use of virtual worlds regulatory sandboxes by Member States [Q2 2024]”.
During a meeting between the Commission and member states representatives (22 October), DG CNECT (the tech civil service) laid out the next steps in their plan: to work with EU members toward “one or more pilot regulatory sandboxes in the area of virtual worlds”. The pilots are expected to inform and guide a wider roll-out.
The Commission also announced a focus group to guide member states. This group will first convene in December; the collaboration with member states is expected in early 2025. The first sandbox pilot is expected in Q1 2026.
During the meeting between member states and the Commission, Portugal presented its framework for regulatory sandboxes and its “Technological Free Zones” concept. Portugal is our bet to pilot one of the first sandboxes.
MLex reported that days after (24 October) its meeting with the ad-hoc group of national experts, the Commission met with the Council of the EU—the official legislative body that represents member states—and again discussed regulatory sandboxes.
Council delegations received a presentation that stated the Virtual Worlds Steering Group will assist the Commission in the preparation of “early possible legislative proposals” on regulatory sandboxes.
What will virtual worlds sandboxes focus on?
Sandboxes work best when they target legal or technical ambiguities and emerging risk areas, particularly data protection. The Steering Group had previously discussed:
Intellectual property
Data sharing and interoperability
Digital identity
Privacy and security
Protection of minors
Harmful content
Environmental considerations
Connectivity
So, future virtual worlds sandboxes will likely focus on a handful of these areas. Our bets are on intellectual property, data sharing, and privacy.
How can companies get involved?
The European Commission’s Virtual and Augmented Reality Industrial Coalition is helping inform the EU’s strategy on virtual worlds, including possible regulatory sandboxes.
The coalition is open to a breadth of EU stakeholders from industry but also academics, creatives, and those working on policy 🙋.
If you’d like to join, you can reach the secretariat here 📩