[Panel Discussion]
Unlocking opportunities: Japan’s regulatory sandbox for international startups and policymakers

From the left , Takeshi Kito Elevandi Japan Co-founder & CEO , Yo Okada Counsellor of Japan's Cabinet Secretariat

(Transcript)

Takeshi Kito
My name is Takeshi Kito. I am Co-founder & CEO, Elevandi Japan. I’m working for the Japanese government Regulatory Sandbox for 6 years. So today, I'm very pleased to come here and have opportunities to introduce the Japanese Sandbox with Okada-san. Okada-san, please introduce yourself.

Yo Okada
I'm Yo Okada, Counsellor of Japan’s Cabinet Secretariat. I'm very pleased to be here with you today. I'm leading a cross-government unit responsible for orchestrating Japan’s regulatory sandbox in collaboration with all the ministries and agencies. My role extends to overseeing the holistic coordination of Japan’s startup support initiatives to advance the societal adoption of pioneering technologies. Thank you very much for coming here today.

Takeshi Kito
Okay, first of all, I’d like to ask the audience. Anyone who heard about the Japanese Sandbox? Please raise your hand? No one?
Okay, Okada-san, what is the Japanese Sandbox?

Yo Okada
I'd like to explain an overview of Japan’s regulatory sandbox. In recent years, technological advancements, such as AI, IoT, and blockchain have been continually emerging. On the other hand, government authorities frequently lack comprehensive knowledge of those technological advancements. Existing legal frameworks are often ill-suited for the cutting-edge technologies. To navigate these challenges, Japan's regulatory sandbox has emerged as an agile solution, enabling you to surmount regulatory hurdles. Under the regulatory sandbox, you can expeditiously implement an experimental demonstration test on site, using the cutting-edge technologies, in any sector within the limited conditions, such as temporal constraints and participant’s limitations. As the result of the demonstration, you can gather information, data, and materials, which can be utilized for the promotion of commercialization and regulatory reform. After the demonstration, if there is no concern on regulatory issues, you can proceed to commercialization directly. If there is a regulatory hurdle in your business model, the data collected serves as a catalyst for regulatory reform. The ministries in charge of regulations need to consider regulatory reform, such as the revision of laws and regulations.

Japan’s regulatory sandbox was established in 2018. The Japanese government embarked on a three-year trial of regulatory sandbox. After we approved over 20 demonstration projects, we made it a permanent legislation in 2021. So far, we've approved 30 demonstration projects in a wide range of sectors such as fintech, mobility, AI, IoT and health tech.

Japan's Cabinet Secretariat has established a single point of contact to provide information and hands-on support to business operators in the prior consultation process. This is an overview of Japan’s regulatory sandbox system.

Takeshi Kito
Thank you very much, Okada-san. We have some keywords. The Japanese sandbox is not only for the financial industry. Any industry can use the sandbox, and also this sandbox is used for commercialization and regulatory reform, and already have 30 approved cases. So, I will ask in detail about those one by one.
Firstly, what is the difference from other countries’ sandboxes? Please explain the difference from other sandboxes.

Yo Okada
Many governments have a system named “regulatory sandbox,” but the scope of coverage and functions defer in various ways. The most conspicuous feature of the Japanese regulatory sandbox is the coverage that is not limited to financial services, but also to other sectors. It can be applied to any sector, any field, or any industry.

If you want to use the regulatory sandbox or other regulatory reform policy tools, you can contact the single point of contact, which was established within the Cabinet Secretariat. We provide not only a review of your application, but also a prior consultation to you before the formal application process. You might not know what laws and regulations can be applied to your business model, or you might have concerns on some regulations that might interfere with your new business. In those cases, you can consult with us through the single point of contact. We will coordinate with you to hash out regulatory issues and discuss with the ministries and agencies in charge of the regulations and support you to design a demonstration project and plan how to implement it. The hands-on support can be provided to you under the Japanese regulatory sandbox system.

Takeshi Kito
Okada-san is leading a single point of contact, and if you want to tackle the issues and challenges of Japanese regulations, contacting him would be your next step. So, I’d like to ask you more about its process. When some companies or financial institutions want to use the regulatory sandbox, how does it work?

Yo Okada
I’d like to explain how Japan’s regulatory sandbox works. First, you can contact us, the single point of contact within the Cabinet Secretariat.We provide a prior consultation and hands-on support to you to develop and design your demonstration project. When your demonstration plan is substantiated, you can submit a formal application to the Competent Ministers in charge of the regulations.

The ministries in charge review your application within a month and sent the result of the review to the Committee. The Committee is an independent evaluating committee of the application and the ministers’ decisions and make a comment to their decisions.The Competent Ministers, then, have to reconsider their decisions based on the comment from the Committee and make a final decision.

If your demonstration plan is approved, you can conduct a demonstration, and after the demonstration, you report the results including data and materials to the Competent Ministers. If there’s no regulatory issue, you can proceed to commercialization directly. If there is a regulatory hurdle to overcome, the ministers in charge of the regulations need to reconsider the regulations to revise the existing laws and regulations.

If their action is too slow, the Cabinet Secretariat has a mechanism to force them to accelerate the regulatory reform. This is a whole process of Japan’s regulatory sandbox.

Takeshi Kito
Thank you for the introduction.
You mentioned that it's useful for regulatory reform. But I think there are some different tools or means for regulatory reform in Japan. So could you explain more details about the differences from other regulatory reform tools in Japan?

Yo Okada
Regulatory reform is an important policy agenda for fostering economic growth driven by the private sector. I just explained that overview of Japan’s Regulatory Sandbox. On top of the regulatory sandbox, there are other regulatory reform policy tools.

For example, the System to Remove Gray Zone Areas is available for those who wish to confirm the interpretation or conformity of laws and regulations before they start a business. The System of special arrangements for corporate field tests is useful for those who aspire to receive special measures and exemptions to implement a business. There are a lot of policy tools leading to regulatory reform. It is sometimes a bit cumbersome to understand which policy tool is appropriate for your business. But you can consult with us, the single point of contact within the Cabinet Secretariat. We can help you to hash out the issues and introduce the most appropriate and expeditious way to solve your problems, not only by the regulatory sandbox but also by the whole picture of the regulatory reform policy tools.

Takeshi Kito
You mentioned that you have already had 30 approved projects so far. So, I’d like to ask about a use case which had a significant impact in Japan.

Yo Okada
I think exemplary cases of the regulatory sandbox’s success are mobility-related demonstration projects conducted by “mobby ride” and “Luup.” Those are e-scooter sharing business. At that time, the existing regulatory framework didn't allow you to ride e-scooters on public roads without helmets and driver’s licenses. You needed to put a helmet on your head for the safety reason and have a driver's license to drive e-scooters on public roads. But for the startups who aspire to deploy e-scooter mobility services nationwide, it was difficult to require their customers to wear helmets and have driver’s license. So they tried to conduct experimental projects on university campus. The roads on university campus are not public roads, so they can drive e-scooters without helmets and driver’s licenses to collect data and information.

The regulations have been eased in a phased manner based on the data and information obtained from the demonstrations, which finally led to the revision of the Road Traffic Act in April of last year. It enables you to drive e-scooters not only on roadways, but also on bicycle lanes without helmet usage and driver's licenses if you're 16 or above. The regulatory change created a new mobility service market as well as a substantial economic impact on the Japanese economy.

Takeshi Kito
My next question is, how do you attract international companies that want to expand their business to Japan but face some challenges in regulations? How do you attract them to enter Japan?

Yo Okada
I believe it is quite important to attract foreign companies and startups into the Japanese market to ignite innovations in Japan. Those foreign enterprises might sometimes face regulatory issues. With little knowledge about the Japanese regulations, they might not understand what kind of regulations can be applied to their business. Regulatory hurdles could hamper their entry into the Japanese market.

Therefore, we developed countermeasures of the regulatory issues, including the regulatory sandbox and the System to Remove Gray Zone Areas, to provide a way to overcome the regulatory hurdles from the regulatory reform policy tools. We also established a single point of contact within the Cabinet Secretariat to provide hands-on support for foreign enterprises and businesses. Those measures might be attractive for them when entering the Japanese market.

Unfortunately, we don't have a sandbox-specific subsidy for you, but we can provide substantial assistances regarding regulations and demonstration design to you. This is the most conspicuous factor of Japan’s regulatory sandbox and regulatory reform systems. I think it could be a privilege for you to consider entering the Japanese market.

Takeshi Kito
It sounds good. Actually, we have a Japanese Pavilion here, and we’ve received many questions from overseas companies. However, many of them expressing concerns about entering Japan seem to have issues related to not fully understanding the regulations. But, from Okada-san’s comment, regulatory sandbox team is providing significant support for companies addressing regulatory issues in Japan. I'm really good to hear that.
Let's move on to another question. It's a quick one. How many overseas companies have inquired about the sandbox, so far?

Yo Okada
Foreign enterprises have been taking advantage of Japan’s regulatory sandbox. For example, they established a Japanese subsidiary and employed Japanese people to develop their business, and after a few years of business, they finally utilized the regulatory sandbox.

Now, we would like to attract model cases directly by foreign companies and startups whose headquarters are located in foreign countries. Those enterprises are expected to create business not only in Singapore and Southeast Asian countries, but also in Japan simultaneously. When entering Japan’s market, foreign companies might face difficulties in not only regulatory issues, but also in talent acquisition in Japan. It might be sometimes difficult to hire Japanese people who can conduct business development and market research and communicate in English. We’d like you to try to embark on the Japanese market simultaneously with Singapore and Southeast Asian markets. We want challengers.

Takeshi Kito
Awesome. And, let me shift the perspective. From the standpoint of policymakers and regulators, I think there are opportunities to collaborate with international sandboxes or work with policymakers outside of Japan. So, my first question is, what do you think about this kind of international collaboration? Do you want to focus on the Japanese domestic market or work with other policymakers internationally?

Yo Okada
I believe it is important for us to collaborate internationally with policymakers of other governments. As I said, many governments have a system named “regulatory sandbox,” but the scope of coverage and functions defer in various ways. However, an international exchange of views is necessary to understand and improve our regulatory sandboxes. We can learn from each other the differences and commonalities of our regulatory sandboxes and share our wealth of knowledge on how they work and how to accelerate our review processes. It is useful to learn how to continuously strive to improve the whole process based on other countries’ best practices.

From my viewpoint, there are policy areas that require cross-border collaboration, but the degree of necessity of international collaboration depends on areas. Some areas such as financial services have a lot of common factors across borders. In those sectors, there might be a possibility that we could establish an international or multilateral regulatory sandbox framework that enables us to, for instance, review your application simultaneously within multiple countries in the future.

Takeshi Kito
I still have many questions for Okada-san, but we are running out of time. Lastly, do you have any comments to companies, institution and policymakers who want to work with you?

Yo Okada
Foreign enterprises are encouraged to take full advantage of Japan’s regulatory sandbox. The Cabinet Secretariat provides hands-on supports from a prior consultation to a formal application process. We support you in having direct discussions with the ministries and agencies in charge of regulations and designing a demonstration project. We also provide a legal assistance service from lawyers who are proficient in regulatory reform for free.

I’d like to mitigate and eliminate any concern of foreign enterprises when they enter the Japanese market. So, please feel free to contact us, if you have a new business idea with cutting-edge technologies in any field, regardless of your nationality.

A message to the government officers who are here is that I am looking forward to collaborating with you. I am ready to exchange our views on regulatory sandbox as well as regulatory reform and advance discussions on possible international cooperation on regulatory sandbox.

Takeshi Kito
Thank you very much.