Regulatory sandbox
Also called innovation sandbox, fintech sandbox, AI regulatory sandbox
A regulatory sandbox is a programme run by a regulator that lets firms test new products, services or technology with real customers under close supervision and agreed limits. Regulators may give tailored guidance, restricted authorisation or rule waivers. The FCA opened its sandbox in 2016, and many regulators have since followed.
How it works
A firm applies with a product that is new, benefits consumers and does not fit existing rules easily. If accepted, it agrees a test plan with the regulator covering customer numbers, duration, safeguards and exit. The FCA offers restricted authorisation, individual guidance, waivers and no enforcement action letters. Tests are small and time-limited, and the firm reports results at the end.
Sandboxes give regulators early sight of new technology and give firms clarity before a full launch. Consumer protection rules still apply and waivers cannot override national or international law. The EU AI Act requires each Member State to have at least one AI regulatory sandbox operating by 2 August 2027, under the 2026 omnibus amendments.
The rules
Requires each Member State to have at least one AI regulatory sandbox operational, offering controlled testing of AI systems before market launch.
EU Member State competent authorities and AI providers taking partSets entry criteria and boundaries for live experiments where MAS relaxes specific legal and regulatory requirements.
Financial institutions and fintech firms testing services in SingaporeCommon questions
Does a sandbox exempt firms from regulation?
No. Firms in a sandbox are still regulated. Regulators can give guidance or waive specific rules they control, but cannot waive national or international law. The FCA states that no enforcement action letters cover only its own disciplinary action, not liabilities to consumers.
Who can apply to the FCA sandbox?
Authorised firms, unauthorised firms that need authorisation and technology firms serving the financial sector can apply. The FCA accepts applications throughout the year and also runs themed cohorts. It looks for genuine innovation, consumer benefit and a real need to test.
What is an AI regulatory sandbox?
An AI regulatory sandbox is a controlled environment where providers develop and test AI systems with a regulator before launch. Under the EU AI Act, each Member State must have at least one operating by 2 August 2027. Sandbox participants receive guidance on meeting the Act's requirements.
