A Dialogue Between Innovation and Regulation: The Interaction Between Experimental Regulatory Instruments and Corporate Compliance

Abstract

Over the past decade, in digital markets there has been a notable increase in the use of experimental regulatory instruments which facilitate innovation by offering a provisional exemption from the prevailing regulations, within a structured environment of monitored risks and supervision while at the same time they provide avenues for regulatory learning through discourse and enhance the understanding of emerging technologies for both external and internal regulators. Commencing with an examination of the compliance aspects of digital companies, the paper proceeds to distinguish between the external and internal dimensions of corporate compliance. Within this interpretative framework, it outlines the conceptual and theoretical background of experimental regulatory instruments, taking into account developments within the EU’s Better Regulation agenda as well. Subsequently, the paper illustrates the learning process based on regulatory dialogue and demonstrates the possibilities for interaction between change and uncertainty management mechanisms in external and internal regulatory dimensions. Furthermore, it highlights the potential of internal corporate sandboxes through the example of addressing the issue of shadow AI generated by large language models.