When regulation enables innovation

Ten years of the sandbox model

Innovation in financial services has always depended on the right conditions: genuine ambition, practical support, and regulation that keeps pace with change. The UK has built a credible claim to leadership on all three fronts, and nowhere is this more evident than in the development of the Digital Sandbox Platform model pioneered by the Financial Conduct Authority (FCA).

Reinventing the relationship between regulation and innovation

When the FCA launched the world's first regulatory sandbox over a decade ago, it fundamentally changed the relationship between regulators and innovators.

“Over the past 10 years, the Regulatory Sandbox has demonstrated that regulation can be a powerful engine for innovation. It has enabled firms to test innovative products in live market conditions with real customers, reducing time to market and helping firms identify consumer protection safeguards that can be built into new products and services.”

Colin Payne, Head of Innovation at the FCA. 

For the first time, firms could test new products and business models, without carrying the full weight of regulatory requirements designed for established services. The effect was immediate and measurable. Firms in the sandbox moved faster from concept to market, and an independent study  found they were 50% more likely to raise funding than comparable peers, securing on average 15% more investment. These are not marginal gains. They reflect a structural advantage that the UK deliberately created and has continued to build on. As noted in the FCA’s recent Innovation Insights report, in 2025, applications to the Regulatory Sandbox and Innovation Pathways increased to 194, a 49% rise from the previous year, showing growing interest in engaging with the FCA earlier in the innovation process. Much of this demand comes from firms developing products using technologies such as artificial intelligence, distributed ledger technology, and open banking and open finance, where safe testing and clarity on regulatory expectations can help ideas move more confidently towards market deployment.

Responding to the changing needs of industry

The model has since evolved considerably based on the feedback and changing needs of industry and innovators. The FCA's shift to an always-open sandbox and launch of the Digital Sandbox in 2020, developed in partnership with the City of London Corporation and delivered by NayaOne, removed the barrier of fixed application windows, allowing firms to engage with regulators at the point in their development where it actually matters.

The Digital Sandbox gave innovators access to high-quality, GDPR-compliant datasets and collaboration tools as a way to develop solutions faster and collaborate with the FCA to solve policy challenges. A practical example of its impact is the work on authorised push payment (APP) fraud, one of the most persistent and costly challenges facing financial services globally. In collaboration with the City of London Corporation, a synthetic dataset comprising millions of transactions and behavioural patterns was made available to firms to develop and stress-test fraud detection solutions without touching real personal data, demonstrating exactly the kind of responsible, high-impact innovation the UK should be known for. The FCA has subsequently used the Digital Sandbox Platform to accelerate policy making and collaboration on areas including Open Finance, ESG and AI, and thousands of users have benefited from the resources provided by the FCA.

AI: the next generation of sandboxes

The FCA's most recent step forward is the AI Supercharged Sandbox, launched in June 2025 in collaboration with NVIDIA, AWS and NayaOne, which signals a genuine shift in how regulators can actively accelerate innovation rather than simply accommodate it. Industry analysis suggests that AI-driven solutions developed through the sandbox could save UK financial institutions up to £2.5 billion annually in areas such as anti-money laundering compliance alone. For smaller firms and start-ups in particular, this levels the playing field, providing access to capabilities that were previously the preserve of institutions with much deeper pockets. It is a clear signal that the UK is not resting on the reputation of what it built a decade ago, but is actively investing in keeping that model relevant as the technology landscape shifts beneath it.

Tangible benefit to real businesses

The experience of Shawbrook, a UK-based specialist bank that participated in the AI Supercharged Sandbox, illustrates the tangible value this infrastructure delivers in practice. Shawbrook had a clear ambition: to find out whether large language models could do more heavy lifting in their financial crime framework. What they found was that the sandbox delivered on multiple levels. The technical environment, secure, FCA-hosted, and equipped with access to leading models including GPT, Claude, and DeepSeek, gave them the infrastructure to test at a scale that would have been difficult to replicate independently. Crucially, the sandbox also created space to work through complex ethical questions around open-source intelligence gathering and GDPR compliance, issues that are difficult to navigate in a live commercial environment. As Thomas Chapman, Head of Group Risk Analytics at Shawbrook notes,

I would encourage any firm with a valid use case and the will to execute it to consider the sandbox… Every day was a school day - the opportunity to learn through doing was one of the greatest benefits as practical application often reveals nuances that even the most thorough theoretical approach cannot anticipate.

Thomas Chapman, Head of Group Risk Analytics at Shawbrook

Their experience reflects a broader truth about what well-designed sandboxes offer: not simply a testing ground, but an environment where responsible innovation can be developed, challenged, and refined before it reaches the market.

From UK innovation to global blueprint

The influence of the UK's approach has spread well beyond its borders. Over 95 global and domestic regulators have since introduced their own sandbox frameworks, many explicitly modelled on the FCA's original design. The most innovative regulators are also following the FCA’s lead in implementing Digital Sandbox and Supercharged AI Sandbox Platforms.

“What began as a UK first has since paved the way for sandbox frameworks around the world, demonstrating how regulators and industry can collaborate to support innovation that drives tangible benefits for consumers, markets, and economic growth.”  

Colin Payne, Head of Innovation at the FCA

International regulatory networks have extended this further, enabling cross-border testing and shared learning that benefits firms operating across multiple markets.

For the City of London Corporation, this track record is not simply a point of pride. Sandboxes are strategic infrastructure, attracting global capital and talent, reducing the cost of responsible innovation, and reinforcing the UK's position as the market of choice for firms building the next generation of financial services. So we are delighted to be celebrating the achievements of the last ten years as we also look ahead to what’s next for regulation driving innovation.

Chris Hayward, 
Policy Chairman of the City of London Corporation