The federal government will make recommended changes to the Enhanced Regulatory Sandbox regime after a scathing review.

The model allows testing of innovation without a financial services or credit licence, but a Treasury review said it should be overhauled after falling short as a driver of innovation.

The scheme, which began in 2020, has had limited take-up, lacks a clear purpose and has become disconnected from Australia’s broader innovation agenda, the review found.

Financial Services Minister Daniel Mulino says suggested changes have been agreed to, and the framework will be replaced with a more flexible model to strengthen testing through to adoption.

“We are moving from principle to practical action,” he told the Fintech Australia Intersekt 2026 conference in Melbourne last Thursday.

Regulators will develop targeted thematic sandboxes in AI-enabled financial services.

Mr Mulino says automated insurance underwriting and AI-assisted advice have been flagged as potential use cases to examine, and a financial innovation committee will be established under a new strategy to support a “co-ordinated whole-of-government approach to financial innovation”. 

The Treasury report followed a submission by Insurtech Australia arguing the ERS was unsuited to testing innovations in underwriting, claims management, fraud detection, AI-driven risk assessment or claims handling.