The Government has completed its review of the Enhanced Regulatory Sandbox (ERS). The independent review found that the ERS delivers some benefits for participating firms but has significant limitations. It recommends substantial reforms to better support financial innovation in Australia.
Background
On 1 September 2020, the Government introduced the ERS to allow testing of certain innovative financial services or credit activities for 24 months without first obtaining an Australian financial services licence (AFSL) or Australian credit licence. Relevant financial services and credit activities include life insurance, superannuation products, crowd-sourced equities and the issuance of payment facilities. Applicants must also limit individual retail client exposure to $10,000 for certain products and total customer exposure to no more than $5 million.
Uptake of the regime has been limited. Since 2020, the Australian Securities and Investments Commission (ASIC) has received 103 applications and accepted 19 entities (18% of applicants) into the ERS. Of the remaining 84 applications, most were unsuccessful because the information was incomplete. Only one former participant has obtained an AFSL after exiting the sandbox. Most participants that continued to operate became corporate authorised representatives.
Key findings
The review found that the ERS provides participating firms with an avenue to test innovative products with consumers. It also identified significant limitations:
- the objectives of the ERS are unclear, limiting its ability to speed up market entry for early-stage firms
- the design of the ERS limits its ability to respond to financial system and technological developments and provide flexible relief tailored to participants’ business models
- the ERS does not support already-licensed financial institutions to test or experiment with innovative products and services
- the ERS is not formally integrated with key ASIC functions, including licensing and supervision, resulting in no structured pathway to licensing for participants
- there is limited evidence of formal processes for sharing information gathered from the ERS with other parts of ASIC to improve regulatory understanding of innovation and new technologies.
Key recommendations
The review recommends that ASIC continue to operate a general regulatory sandbox and reform the ERS to broaden its scope and enhance its flexibility.
Key recommendations include:
- repealing the current ERS legislation and regulations and moving to a model that uses ASIC’s existing relief powers, allowing greater flexibility to respond to industry and technology developments
- better integrating the ERS with ASIC’s broader functions, particularly licensing and supervision, to provide a clearer pathway to licensing
- using thematic sandboxes within ASIC’s areas of sole regulatory responsibility to target specific sectors and emerging technologies
- forming a public-private committee, convened by Treasury and including regulators, industry representatives and independent members, to prioritise thematic sandboxes that cut across multiple regulators and coordinate financial innovation efforts
- developing a national financial innovation strategy to coordinate efforts and build a common understanding of objectives across industry, regulators and government.
Government response
On 7 September 2026, the Government released its formal response to the review. It agreed to three recommendations directed to it: a financial innovation strategy, ERS reform and a public-private committee. It also supported three recommendations directed to ASIC or industry: industry-led regulatory understanding, integration with ASIC functions and thematic sandboxes. The response forms part of the Government’s broader productivity and financial innovation agenda, including work on payments modernisation, digital assets, tokenisation, Digital ID, the Consumer Data Right and responsible AI adoption.
What’s next
The Government has committed to releasing a financial innovation strategy and establishing a Treasury-convened public-private committee to coordinate efforts across government, regulators and industry. It has also committed to repealing the current ERS legislation through a future legislation prioritisation process. This enables ASIC to design a more flexible replacement model using its existing relief powers. The Government also supports ASIC considering thematic sandboxes for specific sectors and emerging technologies.