Last call: Australia consults on Enhanced Regulatory Sandbox

The promise of the fintech sector as an engine of economic growth has drawn increasing attention from the Australian Government. In December 2025, Treasury released a consultation paper in connection with its independent review of the enhanced regulatory sandbox (ERS). The Government is seeking views on:

• the extent to which Australia's regulatory, policy and economic settings foster financial innovation;

• the effectiveness of the current ERS design and regulatory settings; and

• global progress on regulatory sandboxes, including best practice and relevant frameworks.

Treasury is seeking feedback on the consultation paper by 6 February 2026 with the reviewer, Maha El Dimachki, to run targeted consultations with stakeholders. Treasury will typically entertain a short extension for late submissions.

The ERS was introduced in 2020 to encourage innovation in the financial services sector. The sandbox allows natural persons and businesses to test innovative financial services or credit activities without obtaining an Australian financial services (AFS) licence or Australian credit licence (credit licence).

There are requirements to apply and enter the ERS and only 19 entities have participated in the scheme, indicating the limited effectiveness and success of the scheme. The current scheme is subject to a net public interest test and strict conditions. Notably, Australia's ERS (in comparison to other jurisdictions) does not offer a direct route to full licensing.

Of these 19 entities, outcomes have been mixed: 15 entities have ceased using the ERS, with 3 becoming Corporate Authorised Representatives (now ceased) and 1 obtaining an AFSL, while four entities are currently participating in the ERS.

In general, the current ERS does not allow testing of digital asset related offerings unless they fall within eligible financial services or credit activities. This can create potential obstacles where the regulatory treatment of a particular offering is uncertain. Initiatives such as the RBA's Project Acacia have filled the gap to some extent by enabling pilot testing of wholesale tokenisation projects, but again with no clear pathway to licensing and commercialisation.

Meanwhile, peer jurisdictions like the United Kingdom have launched new or expanded sandboxes to test innovative offerings. The United Kingdom's Digital Securities Sandbox goes beyond mere testing and offers the promise of modified regulatory settings depending on project outcomes.

Ms El Dimachki is expected to deliver the government a written report within six months of commencing the review. If all goes well, there could be a major shakeup to the ERS in Australia. An expanded sandbox could attract more software developers and innovators to Australia to develop and commercialise their ideas. With its strong domestic economy, talent pool and rule of law, Australia remains an attractive market and has fostered several notable fintech success stories. With other jurisdictions pressing ahead to foster the development of new market infrastructure, the time is ripe for Australia to seize the opportunities presented by technological innovation.

Written by Steven Pettigrove and Sophie Nguyen