Improvements to Australia’s financial innovation environment moved a step closer this week as the government committed to responding to a critical review of the Enhanced Regulatory Sandbox regime. 

The regime, which allows businesses to test financial innovations without a financial services or credit licence, should be overhauled after falling short as a driver of innovation, the statutory review published last week has concluded. 

The broad-based regime, which began in 2020 but has had limited take-up, lacks a clear purpose and has become disconnected from Australia’s broader innovation agenda, the Treasury review says. 

“The design of the ERS limits its ability to evolve in response to financial system or technological developments, and to provide flexible relief tailored to the business models of participants,” the review finds. 

“The objectives of the ERS are ambiguous, and to the extent they can be identified, narrowly defined compared to overseas regulatory sandboxes. The role of the ERS in the Australian Securities and Investments Commission’s overarching regulatory strategy is also unclear.” 

The review recommends ASIC play a more active role supporting innovation for participating businesses and “consider using thematic sandboxes within its areas of sole regulatory responsibility to target specific sectors, emerging themes and technologies, thereby facilitating innovation and policy development”. 

The review’s conclusion, that the system has become a standing licensing exemption framework, echoes that of Insurtech Australia, which in a submission argued the ERS had done little to foster insurance innovation. 

Insurtech Australia said the framework was unsuited to testing innovations in underwriting, claims management, fraud detection and AI-driven risk assessment. It said key insurance activities, including claims handling, fell outside the sandbox’s scope. 

The review makes no insurance-specific recommendations, but its proposal for targeted, purpose-built sandboxes could pave the way for testing of emerging insurance technologies where specific policy or regulatory barriers are identified. 

The government has yet to respond to the review’s recommendations and says it will outline its position later this year.