Nexus between Regulatory Sandbox and Performance of Digital Banks—A Study on UK Digital Banks
2022Washington PB, Rehman SU, Lee E
Journal of Risk and Financial Management, 15(12), 610
Research · Issue area · FinTech Regulation
FinTech Regulatory Frameworks
Regulatory sandboxes have been adopted in more than fifty jurisdictions, but the empirical evidence on whether they accelerate productive entry — or just produce regulatory press releases — has lagged. What does the UK record actually show, and what should U.S. and other developed-economy regulators learn from it?
Empirical evidence on whether regulatory sandboxes deliver the FinTech-entry-acceleration and consumer-protection-learning their proponents promise — and what U.S. policy should learn from the UK record.
About this issue area
The UK Financial Conduct Authority opened the world's first regulatory sandbox in 2016, and more than fifty jurisdictions have since adopted variants. The empirical case for whether sandboxes actually accelerate productive FinTech entry has lagged the policy-adoption curve. The U.S. Consumer Financial Protection Bureau is again deliberating a federal sandbox-style framework; the Office of the Comptroller of the Currency is on the same question. Several U.S. states — Arizona, Utah, West Virginia — have run their own variants, with mixed results.
The Institute of FAME's research in this area began with Washington, Rehman & Lee (2022, Journal of Risk and Financial Management) — one of the few empirical studies of UK regulatory-sandbox effects on digital-bank performance. The paper has accumulated substantial downstream citation, including at tier-1 European universities and in journals influencing subsequent policy discussion. The institute's forthcoming third paper in this program extends the analytical framework to the available U.S.-state sandbox programs.
The issue area's research questions span: under what design conditions do regulatory sandboxes produce measurable post-graduation firm-performance effects; what do the consumer-protection complaint trajectories during sandbox tenure tell us about the consumer-protection-learning thesis; how do U.S.-state sandbox programs compare to the UK FCA's; and what specific design recommendations follow from the empirical record for federal-level U.S. policy proposals.
Evidence base
FAME-funded and affiliated research in this area
Peer-reviewed publications that anchor FAME's standing in this issue area.
Active programs
FAME programs producing evidence in this area
Where FAME stands
Institutional positions on questions in this area
Question
Should the United States adopt a federal regulatory sandbox modeled on the UK Financial Conduct Authority's program?
The empirical record on the UK FCA sandbox suggests that regulatory sandboxes are most useful as survival mechanisms for FinTech firms whose business models touch genuine regulatory ambiguity, and least useful as general-purpose accelerators for firms whose products already fit within established regulatory perimeters. A U.S. federal sandbox properly scoped to the first case has empirical support; a U.S. sandbox positioned as a general-purpose innovation accelerator does not. The institute supports federal sandbox-style programs designed around specific categories of regulatory ambiguity (open-banking adjacencies, novel custody arrangements, alternative credit-scoring methodologies), with explicit supervisory follow-through to capture post-graduation learning.
Adopted 2026-05-08
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Commentary & outputs
Briefs, op-eds, and comments in this area
policy brief · in-development
2026-06
What the UK regulatory sandbox actually did for its digital banks — and what U.S. policy should learn
Institute of FAME — Policy Brief Series
Translates the Washington/Rehman/Lee 2022 JRFM findings on UK digital-bank performance under the FCA regulatory sandbox into specific design recommendations for CFPB and OCC sandbox proposals. Argues that sandboxes are survival mechanisms for firms killed by regulatory ambiguity rather than growth engines for firms already inside the regulatory perimeter — and that U.S. policy should be scoped accordingly.
op ed · in-development
2026-06
What the UK's regulatory sandbox actually did for its digital banks
American Banker (BankThink)
Op-ed translating the Washington/Rehman/Lee 2022 JRFM findings into a 950-word piece for the American Banker BankThink audience. Hook: 'Sandboxes don't grow startups. They survive ones that should.' Pitched at CFPB and OCC policy staff considering federal sandbox-style frameworks.
Forthcoming outputs
- — Policy brief on regulatory-sandbox effectiveness for U.S. FinTech policy
- — Op-ed for American Banker BankThink translating the UK evidence for U.S. policy audience
- — Third FAME-funded paper: U.S.-state sandbox programs replication
- — Regulatory comments on CFPB and OCC sandbox-related rulemakings
Policy actors we engage in this area
- CFPB Office of Innovation
- OCC Office of Innovation
- Federal Reserve Board Division of Supervision and Regulation, Financial Innovation Section
- FDIC FDITech
- Senate Banking Committee staff
- House Financial Services Committee staff