Recommendation 2

The Department and regulators have been slow to follow best practice in facilitating innovation. The Government’s 2019 White Paper ‘Regulation for the 4th Industrial Revolution’ found that only 29% of businesses believed that government’s approach to regulation facilitates innovation. The Department aims to promote innovation in various ways, primarily through the Regulatory Horizons Council and the Regulators’ Pioneer Fund which has made £13m available to regulators so far. However, the Financial Conduct Authority’s regulatory ‘sandbox’ to encourage and test innovations with a small number of customers in a controlled environment for a limited duration has existed for a number of years and is widely respected. So it is surprising that approaches similar to this regulatory sandbox are not the default model for most regulators, funded out of existing operational budgets and part of business as usual. While the Department tells us that the UK ranks highly in international rankings of regulatory policy and competitiveness, there is also room for the government to identify and learn from national and international best practice on how regulation can facilitate innovation. Recommendation: Government should require regulators to engage meaningfully with businesses to explore potential new ideas and innovations and adopt regulatory sandbox type approaches, in a way that does not hinder regulatory objectives or create undue risk.