The Role of Regulatory Sandboxes in FinTech Innovation: A Comparative Case Study of the UK, Singapore, and Hungary

Abstract

Regulatory sandboxes have emerged as policy instruments designed to support FinTech innovation while maintaining supervisory oversight. By allowing firms to test financial products in controlled environments, sandboxes aim to reduce regulatory uncertainty and facilitate market entry. Despite their growing adoption, empirical evidence of their effectiveness remains limited, particularly in emerging markets. This study explores the impact of regulatory sandboxes on innovation and market access through a qualitative comparative case study of the United Kingdom, Singapore, and Hungary. Drawing on document analysis and thematic coding, the research evaluates sandbox design, regulatory support, and innovation outcomes across the three jurisdictions. Findings show that sandboxes enhance access to funding, accelerate product development, and foster regulator–firm collaboration. While the UK and Singapore benefit from mature ecosystems and structured frameworks, Hungary illustrates sandbox potential in developing markets. The paper contributes to FinTech regulation literature and provides policy recommendations for optimizing sandbox design across varied institutional contexts.

1. Introduction

The rapid evolution of financial technology (FinTech) has had a profound impact on the global financial landscape, giving rise to innovative products and services that challenge traditional financial systems. Nevertheless, these advancements frequently exceed the capacity of existing regulatory frameworks, engendering uncertainties that have the potential to impede innovation and market entry. In order to address this issue, regulatory sandboxes have been proposed as a novel approach, allowing FinTech firms to test their innovations in a controlled environment under the supervision of regulatory authorities.

The objective of regulatory sandboxes is to achieve a balance between the promotion of innovation and the assurance of consumer protection and financial stability. The provision of a structured framework for experimentation by these sandboxes has been demonstrated to reduce regulatory uncertainty, encourage investment, and facilitate the entry of new players into the financial market. The Financial Conduct Authority (FCA) of the United Kingdom was the first to establish this concept in 2016, thereby establishing a precedent that has since been adopted by numerous other jurisdictions worldwide, including Singapore and Hungary.

Empirical studies have begun to shed light on the impact of regulatory sandboxes. For instance, Goo and Heo [1] conducted a comparative analysis across nine countries and found that the introduction of regulatory sandboxes positively influenced FinTech venture investments, suggesting that such frameworks can play a vital role in enhancing the FinTech ecosystem. In a similar vein, Cornelli et al. [2,3] presented evidence from the UK, indicating that firms participating in the sandbox exhibited a higher propensity to raise capital and demonstrated higher survival rates in comparison to their counterparts.

Despite the growing popularity of sandboxes, there is limited comparative research on how these frameworks function across jurisdictions with different regulatory traditions. This study addresses this gap through a qualitative multiple case study of the UK, Singapore, and Hungary, based on document analysis and thematic coding, and contributes to the growing literature on FinTech regulation by offering a comparative analysis of regulatory sandboxes across jurisdictions with varying levels of regulatory maturity. While prior research has focused either on mature ecosystems or single-country contexts, this paper addresses a significant gap by including an emerging European market (Hungary) alongside global leaders (UK, Singapore). Through this approach, the study provides original insights into how sandbox design, institutional context, and policy objectives interact to shape innovation outcomes.

The paper is organized as follows: Section 2 reviews the relevant literature on regulatory sandboxes and FinTech innovation. Section 3 outlines the research methodology. Section 4 presents the findings of the case studies, followed by a comparative discussion in Section 5. Finally, Section 6 concludes the paper with key insights and policy implications.

2. Literature Review

2.1. Conceptual Foundations of Regulatory Sandboxes

The concept of regulatory sandboxes emerged in the mid-2010s as a response to the tension between financial innovation and regulatory certainty. The term refers to controlled environments established by financial regulators in which FinTech firms can test new products and services under relaxed regulatory conditions but under close supervision [4,5]. Beyond their technical and supervisory aspects, regulatory sandboxes also reflect the broader economic function of administrative law. As Lapsánszky and Boros [6] argue, administrative regulation increasingly serves not only to enforce compliance but also to design and steer market environments in line with public objectives. Sandboxes exemplify this evolution, functioning as instruments of proactive governance that enable innovation while preserving legal oversight.

Regulatory sandbox was first formally introduced by the UK’s FCA in 2016, thus marking a significant paradigm shift in regulatory strategy from ex-post enforcement to ex-ante facilitation of innovation [4,7,8].

The regulatory sandbox is a concept designed to reduce the barriers to entry for startups and enable rapid experimentation without the full burden of compliance, which often represents a significant constraint for small, innovative firms [9]. However, this approach has given rise to theoretical and practical debates. Scholars such as Lemma [10], sandboxes represent a component of a more extensive trend of responsive regulation, within which regulators transition from a rigid rule-based model to more dynamic and iterative frameworks. Consequently, sandboxes should be regarded not only as a testing mechanism but also as an indication of a regulatory culture shift.

Further theoretical elaboration has been provided by Allen [11], who warns of the risks of regulatory capture and exclusivity in sandbox participation. He emphasizes the importance of transparent admission criteria and regulator neutrality to prevent perceived favoritism in FinTech ecosystems.

Ahern [12] deepens this line of reasoning by identifying three main structural barriers within the EU context: regulatory lag, friction, and transition. These concepts underscore the systemic inertia within traditional regulatory frameworks and emphasize the value of sandboxes as agile tools for adaptive oversight. Ringe and Ruof [13] respond to this challenge with the idea of a “guided sandbox”—a hybrid model in which national innovation is coupled with coordinated EU oversight, ensuring consistency while preserving experimental freedom.

The extant literature identifies several key dimensions along which sandboxes vary [14]. These include institutional design, eligibility criteria, regulatory relief offered, supervision intensity, and post-sandbox transition mechanisms. The diversity of approaches is exemplified in the comparative analysis of sandbox initiatives in the UK, Singapore, and Lithuania, each of which reflects different regulatory priorities and market conditions [15,16].

The Hungarian context has received comparatively less attention in global literature, although this situation is beginning to change. According to the Hungarian FinTech Strategy [17], the National Bank of Hungary (MNB) views the establishment of sandboxes as a core pillar in promoting domestic FinTech growth and digital transformation, particularly in collaboration with incumbent financial institutions and international innovation hubs.

As noted by Allen [11] and Ahern [12], critics have raised concerns about the risk of regulatory capture and the potential for selection bias in sandbox participation. As posited by certain authors, the issue of ‘selection bias’ is a salient concern. This pertains to the notion that the ability to successfully navigate the sandbox application processes is exclusive to firms that possess both robust legal and technical capabilities. This phenomenon has the potential to perpetuate existing inequalities within the FinTech ecosystem [18].

2.2. The Impact of Regulatory Sandboxes on Innovation and Market Entry

Empirical evidence increasingly supports the notion that regulatory sandboxes can significantly enhance FinTech innovation and facilitate market access for emerging firms. These environments offer regulatory relief in addition to credibility, visibility, and access to valuable mentorship and stakeholder networks.

Cornelli et al. [2,3] analyzed over 500 FinTech firms that participated in the UK’s FCA sandbox, finding that these firms experienced a 15% higher likelihood of securing subsequent funding and exhibited greater survival rates compared to a matched control group. These outcomes suggest that participation in sandboxes may serve as a quality signal to investors and consumers alike.

In a similar vein, a comparative report by the World Bank observed that well-designed sandbox regimes have the potential to facilitate the identification of regulatory gaps during the early stages of the product development cycle, thereby reducing the time required to market a product and enhancing long-term compliance alignment [19]. This is of particular importance in regulatory systems that are still in the process of development, such as in Hungary, where the sandbox model is employed to reduce systemic entry barriers.

McCallum and Aziakpono [20] assess the case of South Africa, concluding that a regulatory sandbox is only effective when supported by a coherent policy environment, institutional trust, and adequate market maturity. Their findings highlight the relevance of contextual and institutional preconditions, which this study also seeks to evaluate comparatively.

From a banking-sector perspective, Drago et al. [21] explore FinTech-related behavior among Italian banks and underscore the importance of multidimensional readiness—including technological, organizational, and regulatory adaptability. Their statistical analysis demonstrates that sandbox participation can correlate with FinTech integration, especially when disclosure, investment, and collaboration variables are optimized.

Aside from capital access, innovation speed has been documented as another advantage. It has been reported that startups within sandbox environments experience accelerated product development cycles attributable to streamlined communication with regulators and adaptive compliance processes [22]. This finding is consistent with theoretical models of “innovation-through-experimentation”, in which reduced regulatory friction catalyzes iterative product refinement [23].

However, it should be noted that not all impacts are unequivocally positive. Certain studies have demonstrated that there are issues with regard to the accessibility of sandboxes, particularly for micro-enterprises or firms located outside of capital-intensive urban hubs. Additionally, there is an ongoing debate regarding whether sandbox-tested firms gain unfair market advantage through “soft approval”, which could potentially distort market dynamics [24,25].

Notwithstanding the aforementioned limitations, the extant body of evidence suggests that regulatory sandboxes play a facilitative—if not transformative—role in supporting FinTech ecosystems. Nevertheless, the success of the aforementioned parties is contingent upon the transparency of the admission process, the clarity of the regulatory relief provided, and the mechanisms for post-sandbox integration into the mainstream financial system.

Despite the growing number of theoretical and empirical contributions, several gaps remain. First, there is limited comparative research that systematically examines sandbox implementation across jurisdictions with diverse regulatory maturity levels. Second, studies tend to focus on either developed economies (e.g., the UK, Singapore) or single-country analyses, often omitting emerging markets like Hungary. Third, few studies directly link sandbox design features (e.g., entry criteria, supervisory intensity, legal exemptions) to innovation outcomes and long-term market integration.

This study contributes to the literature by offering a comparative analysis of three jurisdictions—the UK, Singapore, and Hungary—which represent different institutional traditions and sandbox models. In doing so, it integrates both well-established and underexplored contexts, providing practical insights for sandbox design and FinTech regulation.

The research question of this study is as follows: How do regulatory sandboxes influence FinTech innovation and market entry across jurisdictions with varying levels of regulatory maturity, and what design features optimize their policy impact?

3. Methodology

This study adopts a qualitative multiple-case study design, which is appropriate when investigating complex institutional phenomena across diverse regulatory contexts. Regulatory sandboxes are embedded in national legal and policy ecosystems, and their effects on innovation are often mediated by contextual factors such as regulatory culture, administrative capacity, and market maturity. Therefore, a comparative qualitative approach allows for capturing nuanced dynamics that quantitative methods might overlook. This approach is increasingly used in FinTech regulation research [20,21], particularly when exploring early-stage policy tools like sandboxes, where large-scale longitudinal data is often unavailable or inconsistent.

Three jurisdictions were selected: the United Kingdom, Singapore, and Hungary. These cases were chosen based on purposive sampling and the following three criteria:

• Diversity in regulatory maturity and innovation ecosystems: The UK and Singapore represent leading sandbox jurisdictions with global reputations for regulatory innovation and supervisory agility [2,13]. Hungary, in contrast, represents a transitioning or emerging regulatory system, offering a less examined, yet increasingly relevant, perspective.
• Availability of public policy documents and sandbox data: All three jurisdictions publish sandbox-related materials, including guidelines, evaluation reports, and participant lists, enabling robust document-based analysis.
• Comparative policy relevance: The three cases capture variation in sandbox design models—from the UK’s cohort-based approach to Singapore’s more flexible engagement model and Hungary’s exploratory regulatory experimentation within an EU context. This diversity allows for drawing generalizable insights about sandbox design and outcomes.

This selection logic is aligned with previous studies emphasizing the importance of institutional contrast in understanding sandbox impact [12,20].

The research is entirely dependent on secondary data sources, including official publications from financial regulatory authorities (e.g., the UK FCA, the Monetary Authority of Singapore, and the MNB), academic journal articles, policy reports, and industry analyses. The key documents utilized in this study encompass national FinTech strategies, annual reports of sandbox programs, academic monographs, and case studies published by FinTech industry associations. All documents were collected between January and March 2025, primarily from the central bank and financial supervisory authority websites, official policy repositories, and academic databases.

Documents were analyzed using qualitative content analysis following Mayring [26]. The coding was conducted manually in a multi-stage process. Initial open coding was performed to identify recurring themes in each jurisdiction. Based on the literature [11,21], a set of deductive codes was developed covering three analytical dimensions:

• the institutional design of the sandbox (e.g., eligibility, scope, supervision),
• the regulatory benefits provided to participants (e.g., exemption, consultation),
• and observable innovation outcomes (e.g., funding access, market integration, product iteration).

A process of axial coding was then applied to group themes and refine categories across cases. Coding was conducted twice at two-week intervals to test internal consistency and enhance methodological transparency and reliability. Triangulation was employed by comparing multiple document types (regulatory texts, evaluations, academic sources) for each country. Any ambiguous interpretations were resolved through consultation with secondary literature and regulatory statements.

While the study did not involve primary interviews, the use of diverse, policy-relevant secondary sources strengthens both the validity and transferability of findings [20,21].

4. Results

4.1. The UK—FCA Regulatory Sandbox

The UK is widely recognized as the birthplace of the modern regulatory sandbox. Launched in 2016 by the FCA, the UK’s sandbox has served as a model for numerous other jurisdictions and is often cited in the academic and policy literature as a benchmark for best practices in regulatory innovation.

The FCA sandbox was introduced as part of Project Innovate, a broader initiative aimed at supporting innovation in financial services while ensuring consumer protection and market integrity. The sandbox offers a controlled environment where eligible FinTech firms can test innovative products, services, or business models with real customers, subject to appropriate safeguards.

The regulatory sandbox program implemented by the FCA is structured around five core objectives, each designed to balance innovation with regulatory oversight. First, the sandbox seeks to encourage competition and innovation within the financial services sector by enabling new entrants and unconventional business models to test their ideas without facing immediate full regulatory burdens. Second, it aims to reduce the time and cost associated with bringing innovative ideas to market, recognizing that early-stage FinTech firms often face significant compliance hurdles that can stifle creativity and market entry.

Third, the program places a strong emphasis on identifying appropriate consumer protection safeguards during the testing phase. By doing so, it ensures that experimental products and services are assessed for potential risks to consumers, thus maintaining public trust in the financial system. Fourth, the sandbox initiative strives to improve the regulator’s understanding of emerging technologies. Through direct engagement with innovative firms, the FCA can better anticipate technological trends and adapt its regulatory frameworks accordingly. Finally, the sandbox is designed to inform regulatory policy and facilitate better rulemaking. Insights gained from sandbox operations provide valuable empirical evidence that supports the development of more nuanced, flexible, and forward-looking financial regulations.

Together, these objectives demonstrate the FCA’s proactive approach to regulating innovation. Rather than applying rigid traditional frameworks to nascent technologies, the sandbox model exemplifies a more collaborative, adaptive form of financial supervision, which has since been emulated by numerous jurisdictions worldwide [27].

The FCA’s regulatory sandbox operates on a cohort-based model, with periodic application windows allowing firms to submit proposals for participation. Each cohort is structured to ensure that a manageable number of firms can be admitted and supervised effectively, thereby maintaining the integrity and quality of the testing environment. Firms selected for the sandbox receive a tailored set of regulatory tools specifically designed to address the particular regulatory challenges associated with their innovations.

These tools include, but are not limited to, restricted authorizations, which permit firms to operate within a limited scope without requiring full licensing; individualized regulatory guidance, where the FCA provides bespoke advice on how regulatory obligations apply to the novel service or product; and waivers or modifications of specific FCA rules, where such deviations are legally permissible. Additionally, participants benefit from direct access to FCA supervisory teams, facilitating continuous dialogue and real-time regulatory support throughout the testing phase.

Since its inception, the FCA sandbox has supported almost 200 firms across seven distinct cohorts and an always open sandbox, covering a wide range of FinTech activities such as digital payments, blockchain solutions, regtech applications, and robo-advisory services. To gain admission, applicants must meet stringent eligibility criteria, demonstrating that their innovations are genuinely novel, that they provide clear benefits to consumers, and that sandbox participation is necessary due to prevailing regulatory uncertainty or other compliance-related barriers. This selective admission process ensures that the sandbox remains focused on initiatives with the highest potential for positive market impact and consumer welfare enhancement.

The structured design and rigorous selection mechanisms of the FCA sandbox have contributed to its reputation as a leading model for innovation-friendly regulation. However, while the sandbox has demonstrated significant success in facilitating FinTech experimentation and market entry, it also presents complex challenges that warrant critical examination. Key questions remain regarding the extent to which sandbox participation translates into long-term firm success, the risk of regulatory favoritism, and the potential for broader systemic impacts on competition and financial stability. The following sections explore the empirical outcomes observed among sandbox participants and assess the strengths and limitations of the FCA’s approach within a comparative international framework.

Empirical evidence increasingly supports the view that participation in the FCA’s regulatory sandbox generates significant positive outcomes for FinTech firms. A comprehensive study conducted by Cornelli et al. [2] demonstrated that firms admitted to the sandbox exhibited approximately a 15% higher likelihood of securing external funding compared to their non-participating counterparts. Furthermore, these firms also showed enhanced survival rates and accelerated product development trajectories, suggesting that sandbox participation can serve as a quality signal for both investors and consumers.

Beyond firm-level benefits, the sandbox has also contributed substantively to regulatory learning and institutional adaptation. Insights derived from sandbox experiments have directly informed several important regulatory updates, including refinements to guidelines on digital identity verification, the development of open banking APIs, and the emerging classification standards for crypto-assets. This iterative feedback mechanism between regulators and innovators has not only improved the responsiveness of the UK’s financial regulatory framework but has also reinforced the country’s positioning as a leading global FinTech hub.

Nevertheless, the sandbox model is not without criticism. Scholars have identified potential concerns regarding accessibility biases, noting that firms with greater legal and technical resources may have disproportionate success in navigating the sandbox application and testing processes. Moreover, there is an ongoing debate about the risk of regulatory capture, whereby sandbox initiatives could become overly influenced by incumbent interests or dominant market players, potentially distorting competition and undermining the sandbox’s foundational objective of promoting inclusive innovation [15].

While the FCA sandbox has thus proven effective in fostering FinTech innovation and regulatory modernization, a broader comparative analysis with other leading sandbox models, such as those implemented in Singapore and Hungary, is necessary to fully understand the diverse design choices, contextual adaptations, and systemic impacts that characterize the global regulatory sandbox landscape.

4.2. Singapore—MAS FinTech Regulatory Sandbox

Building on the insights gained from the UK’s pioneering sandbox model, it is instructive to examine how other jurisdictions have adapted the regulatory sandbox concept to their specific market environments and strategic objectives. Singapore has emerged as one of the most proactive and innovation-driven jurisdictions in the global FinTech landscape [28]. Recognizing the transformative potential of financial technologies, the Monetary Authority of Singapore (MAS) launched its FinTech Regulatory Sandbox in 2016, shortly after the establishment of the UK’s FCA sandbox. This initiative formed part of a broader strategic vision to position Singapore as a leading FinTech hub not only within Asia but also on the global stage [29]. The MAS sandbox represents a distinctive regulatory approach characterized by operational agility, strong alignment with national innovation strategies, and an emphasis on cross-border scalability. In the following section, the structure, operation, and observed impacts of Singapore’s sandbox framework are analyzed, providing valuable comparative perspectives on the role of regulatory experimentation in fostering FinTech innovation.

The MAS regulatory sandbox operates within a highly centralized and coordinated regulatory framework, reflecting Singapore’s technocratic governance model and its strategic commitment to innovation-led economic growth. In contrast to the UK’s cohort-based approach, the MAS initially adopted a rolling admissions model, whereby applications for sandbox participation are accepted throughout the year. This continuous intake structure significantly enhances flexibility and accessibility for FinTech firms, allowing them to align their innovation cycles with regulatory engagement in a more dynamic manner [30].

Recognizing the need to further streamline regulatory experimentation, the MAS introduced the Sandbox Express in 2020, a fast-track mechanism designed for low-risk FinTech innovations. Under this model, eligible firms—such as those involved in insurance brokering, remittance services, and business-to-business (B2B) lending—can obtain approval to commence live testing within as little as 21 days, provided that they meet a set of predefined, standardized conditions. This expedited pathway reflects Singapore’s broader policy emphasis on regulatory efficiency without compromising financial stability or consumer protection. In 2022, the MAS introduced the Sandbox Plus initiative as an enhancement of its existing regulatory sandbox framework. Designed to support a broader spectrum of FinTech innovations, including higher-risk and more complex projects, Sandbox Plus offers extended testing periods, financial grants to offset development and regulatory costs, and a streamlined transition pathway toward full licensing. This expanded model reflects Singapore’s strategic commitment to fostering an inclusive and dynamic FinTech ecosystem capable of scaling innovations from experimental stages to market maturity [31].

Moreover, the MAS sandbox is not an isolated initiative but is embedded within a comprehensive suite of national innovation strategies. These include the Smart Financial Centre strategy, which envisions Singapore as a global leader in digital finance; Project Ubin, a groundbreaking blockchain-based interbank payment initiative; and an array of grants and acceleration programs offered through the Singapore FinTech Festival, the largest FinTech event of its kind globally. This integrated approach ensures that regulatory experimentation is closely tied to wider efforts at ecosystem development, talent cultivation, and international collaboration.

The MAS sandbox provides participating firms with several key forms of regulatory support, carefully calibrated to facilitate innovation while safeguarding financial stability and consumer interests. Among the primary mechanisms offered are the relaxation of licensing requirements, allowing firms to conduct limited live testing without undergoing the full licensing process; tailored reporting obligations, which reduce compliance burdens while maintaining appropriate oversight; and structured engagement with MAS supervisory officers, fostering an environment of collaborative regulatory dialogue.

Applicants seeking entry into the sandbox must satisfy a set of clearly articulated eligibility criteria. First, the proposed financial service must be demonstrably innovative, offering novel functionalities or addressing previously unmet market needs. Second, the applicant must show that sandbox participation is necessary due to existing regulatory constraints that would otherwise inhibit or delay market entry. Third, firms must be capable of implementing appropriate safeguards to manage any risks posed to consumers or the financial system during the live testing phase.

Between 2016 and 2022, the MAS sandbox received more than 70 applications, of which over 40 projects were accepted for live testing. These projects spanned a diverse array of FinTech sectors, including robo-advisory services, digital insurance solutions, and blockchain-based payment systems, reflecting the sandbox’s broad technological scope and its role as a catalyst for a wide range of financial innovations.

The robust design and carefully structured participation criteria of the MAS sandbox have played a pivotal role in shaping its operational success and attractiveness to a broad spectrum of FinTech innovators. However, beyond the procedural architecture, it is essential to evaluate the tangible impacts of the sandbox on market dynamics, firm performance, and regulatory development. The following section examines the empirical outcomes associated with Singapore’s sandbox initiative, highlighting its contributions to FinTech sector growth, regulatory evolution, and cross-border financial innovation.

Empirical observations indicate that Singapore’s regulatory sandbox has had tangible impacts on the growth and diversification of the FinTech sector, particularly by facilitating cross-border experimentation and international collaboration. Several firms leveraging the MAS sandbox have successfully tested innovative solutions that were subsequently exported to broader regional markets, notably in Southeast Asia and the Middle East, including Malaysia and the United Arab Emirates. This ability to act as a launchpad for international expansion underscores the sandbox’s strategic role in promoting Singapore as a FinTech gateway for the region.

A key strength of the MAS sandbox model lies in its emphasis on regulatory clarity and scalability. Firms graduating from the sandbox are provided with clear, structured guidance on the requirements for obtaining full regulatory authorization, thereby smoothing the transition from experimental to mainstream operations. Additionally, the continuous feedback loop established between sandbox participants and regulatory authorities has contributed significantly to policy evolution, informing substantive updates to legislation such as the Payment Services Act (PSA) and the regulatory frameworks for digital banking licenses.

Nonetheless, critical perspectives have emerged regarding certain unintended consequences of the MAS approach. Scholars have noted the risk of “innovation lock-in”, whereby firms may overly tailor their solutions to fit sandbox-specific regulatory parameters, potentially limiting their adaptability in broader or less supportive market contexts. Furthermore, the MAS’s strategic focus on scalability and regional outreach may, at times, come at the expense of fostering domestically-oriented, inclusion-driven innovations, particularly those targeting underserved local populations [18].

While Singapore’s sandbox demonstrates how regulatory experimentation can be strategically leveraged to drive international FinTech expansion and policy innovation, it is equally important to explore how emerging markets, such as Hungary, have adapted the sandbox model to their unique regulatory, economic, and technological contexts.

4.3. Hungary—MNB FinTech Regulatory Sandbox

Hungary represents a rapidly evolving FinTech ecosystem within the European Union, characterized by a growing institutional focus on digital transformation and innovation-driven regulatory reform. In line with broader national and EU-level strategic objectives, the MNB launched its regulatory sandbox initiative in 2018 as a central component of its FinTech strategy. The Hungarian sandbox, while inspired by international best practices, reflects the institutional logic of a more formalized and permit-centered regulatory culture. As Lapsánszky [32] demonstrates in his detailed account of Hungary’s electronic communications governance, economic regulation in emerging markets often emphasizes hierarchical oversight and legal certainty over experimental flexibility. This administrative tradition shapes the sandbox’s cautious design and limited operational scope.

The sandbox forms part of a comprehensive agenda aimed at enhancing financial innovation, promoting financial inclusion, and adapting the regulatory framework to accommodate the opportunities and challenges presented by emerging technologies. In the following section, the structural design, operational mechanisms, and observed impacts of Hungary’s sandbox are examined, shedding light on the particular dynamics of regulatory experimentation in an emerging market context [33].

The Hungarian regulatory sandbox operates in alignment with the Hungarian FinTech Strategy (2019–2022) and the more recent MNB FinTech and Digitalisation Report (2024), both of which emphasize the creation of a safe, innovation-conducive regulatory environment. Central to the MNB’s approach is the objective of ensuring that digital transformation enhances the competitiveness, efficiency, and resilience of the domestic financial system while maintaining a strong commitment to consumer protection and financial stability.

Distinct from cohort-based models employed in jurisdictions such as the UK, the Hungarian sandbox follows a continuous, case-by-case admission framework. Under this model, applications are evaluated individually, allowing for greater flexibility and responsiveness to the specific needs of market participants. The sandbox is open to a wide range of financial market actors seeking to introduce innovative products, services, or business models that necessitate a temporary, supervised regulatory environment in order to test feasibility, compliance, and risk management practices before proceeding to full market deployment.

The Hungarian regulatory sandbox offers a set of carefully designed tools aimed at facilitating safe and effective financial innovation within a supervised framework. Among its core features is the provision of temporary exemptions or simplifications from certain licensing obligations, enabling firms to conduct limited-scope testing without the need for full regulatory authorization. Participants also benefit from tailored regulatory guidance during the testing period, which allows for a more nuanced and iterative approach to compliance challenges associated with novel financial products or services.

In addition, the sandbox mandates structured consumer protection and data governance requirements, ensuring that innovations are tested within a framework that prioritizes the rights and security of consumers. A notable aspect of the Hungarian model is its explicit emphasis on alignment with European Union regulations, including the Payment Services Directive 2 (PSD2), Markets in Financial Instruments Directive II (MiFID II), Anti-Money Laundering Directives (AMLD), and, more recently, the Markets in Crypto-Assets Regulation (MiCA) applicable to digital assets and crypto-innovations.

Importantly, the sandbox is integrated into the broader institutional structure of the MNB Innovation Hub, which supports a wide range of initiatives aimed at promoting financial literacy, cybersecurity resilience, and digital identity verification standards. As such, the Hungarian sandbox is not merely a regulatory waiver mechanism but operates as a supervisory dialogue platform, fostering continuous engagement between innovators and regulators to better anticipate and manage the risks associated with financial and technological advancement.

The comprehensive design and strategic integration of the Hungarian sandbox within the broader innovation ecosystem underscores its potential as a catalyst for domestic FinTech development. However, in order to fully assess its effectiveness, it is necessary to examine the observable impacts of the sandbox on firm behavior, market dynamics, and regulatory evolution. The following section analyzes the empirical outcomes associated with the MNB sandbox initiative, offering insights into its achievements, challenges, and broader implications for financial innovation in emerging EU markets.

Recent analyses, including findings from the HUNFINTECH 20/20 report and the MNB FinTech and Digitalisation Report (2024), indicate that Hungary’s FinTech ecosystem has undergone significant expansion in recent years. Currently, the sector encompasses over 200 registered firms, with a predominance of business-to-business (B2B) focused micro and small enterprises. These firms exhibit a strong technological orientation, particularly toward data analytics, blockchain solutions, and digital payment innovations, reflecting broader global trends in FinTech specialization.

Although comprehensive quantitative evaluations of the sandbox’s long-term impacts remain limited, qualitative evidence suggests that firms participating in the regulatory sandbox experience greater regulatory clarity and accelerated market adaptation compared to their non-participating peers. Nevertheless, several structural barriers persist. Bureaucratic complexity within the application and supervision processes, along with limited public visibility of the sandbox program, continue to constrain its broader uptake among emerging FinTech actors.

Moreover, despite promising technological capabilities, the export activity of Hungarian FinTech firms remains moderate. According to recent microdata-based research, higher added value, larger firm size, and foreign ownership are positively correlated with an increased likelihood of export engagement. These findings suggest that while the sandbox has successfully lowered certain entry barriers, further policy support may be necessary to facilitate international scaling and enhance the global competitiveness of the domestic FinTech sector.

The Hungarian regulatory sandbox initiative serves as a catalyst for fostering structured regulatory experimentation and enhancing the dialogue between FinTech innovators and supervisory authorities [34]. By facilitating early-stage regulatory engagement and lowering compliance-related entry barriers, the sandbox contributes to the development of a more dynamic and innovation-friendly financial ecosystem. However, its long-term effectiveness is contingent upon the resolution of several structural and operational challenges.

First, the relatively limited public visibility and outreach of the sandbox restrict its accessibility, particularly for smaller and less well-connected FinTech startups. Expanding awareness initiatives and simplifying application procedures could substantially enhance the inclusiveness and diversity of sandbox participants. Second, bureaucratic complexity within the testing framework may deter some innovators, suggesting the need for more streamlined supervisory processes and adaptive regulatory support during the testing phase.

Third, in order to maximize its systemic impact, the sandbox must be more fully integrated into Hungary’s broader FinTech and digital finance strategy. This includes closer alignment with initiatives supporting venture financing, tax incentives for innovative firms, and infrastructure development, particularly in areas such as cybersecurity and digital identification. Strengthening these complementarities would enable sandbox-tested firms to scale more effectively both domestically and internationally.

Finally, the Hungarian sandbox must navigate the ongoing evolution of the European regulatory landscape, particularly in light of the Markets in Crypto-Assets Regulation (MiCA) and the Digital Operational Resilience Act (DORA). Ensuring that sandbox activities remain consistent with emerging EU requirements will be critical for maintaining regulatory coherence and facilitating cross-border scalability.

In sum, while Hungary’s regulatory sandbox has established a valuable foundation for innovation-friendly financial supervision, targeted policy enhancements and structural reforms are necessary to fully unlock its potential as a driver of sustainable FinTech growth.

5. Discussion

5.1. Cross-Case Insights

The comparative analysis of the three jurisdictions reveals several recurring themes and notable divergences. Across the cases, regulatory sandboxes have emerged as important tools for facilitating financial innovation, particularly in reducing regulatory uncertainty and improving market access for FinTech firms. However, the institutional context in which these sandboxes operate significantly shapes their effectiveness.

The United Kingdom’s FCA sandbox emerges as the most institutionalized and influential model, distinguished by its structured cohort system, strong signaling effects to investors, and a well-established feedback mechanism that informs regulatory policymaking. The UK experience illustrates how regulatory clarity combined with reputational support can significantly lower barriers to innovation and facilitate early-stage investment in FinTech enterprises.

In contrast, the Monetary Authority of Singapore’s (MAS) sandbox, particularly with its Sandbox Express variant, excels in operational agility and regional scalability. Its emphasis on fast-track regulatory approvals, robust public–private collaboration, and strong alignment with national digitalization and innovation goals underscores the critical role of regulatory efficiency in supporting FinTech development in rapidly evolving and highly competitive markets.

Meanwhile, Hungary’s regulatory sandbox, although younger and more limited in scope, plays a pivotal role in building trust and fostering dialogue between FinTech innovators and regulatory authorities. The Hungarian model demonstrates the adaptive potential of sandboxes in emerging European Union markets, although further efforts are needed to enhance accessibility, increase transparency, and strengthen post-sandbox integration mechanisms to fully realize its developmental impact.

The comparative evaluation of regulatory sandbox initiatives across the UK, Singapore, and Hungary highlights several core contributions that these frameworks make to the development of FinTech ecosystems. First, regulatory sandboxes significantly contribute to enhancing regulatory clarity for emerging financial services, offering innovators a clearer understanding of compliance expectations and facilitating more predictable market entry pathways. Second, sandbox participation is associated with a faster time-to-market and supports iterative product testing, enabling firms to refine their offerings in close collaboration with regulatory authorities.

Third, empirical evidence suggests that sandbox initiatives improve access to funding, particularly for early-stage startups that benefit from the reputational advantages and investor signaling effects associated with regulatory endorsement. Fourth, sandboxes foster increased dialogue between innovators and regulators, promoting mutual understanding and enabling regulators to better anticipate and respond to technological developments.

Despite these positive outcomes, several challenges persist across jurisdictions. Ensuring fair access for micro-enterprises and marginalized innovators remains a critical concern, as resource-intensive application processes may inadvertently privilege larger or better-connected firms. Additionally, there is a risk of “sandbox capture”, whereby dominant incumbents leverage sandbox participation to entrench market positions, potentially distorting competition. Furthermore, maintaining alignment with evolving European regulatory frameworks, such as the Markets in Crypto-Assets Regulation (MiCA) and the Digital Operational Resilience Act (DORA), poses an ongoing challenge for EU member states. Finally, a broader methodological issue concerns the need for systematic measurement of long-term sandbox impacts, extending beyond immediate firm-level outcomes to encompass sector-wide innovation dynamics and consumer welfare considerations.

5.2. Policy Recommendations

Based on the comparative analysis of the regulatory sandbox initiatives in the UK, Singapore, and Hungary, several policy recommendations can be formulated to optimize the effectiveness of sandbox frameworks in fostering financial innovation while maintaining regulatory integrity.

First, there is a critical need to institutionalize systematic monitoring and evaluation mechanisms within sandbox programs. Establishing clear metrics—such as innovation success rates, post-sandbox funding trajectories, and consumer protection outcomes—would provide empirical foundations for assessing the sandbox’s long-term efficacy and for refining regulatory approaches accordingly.

Second, policymakers should seek to foster international cooperation and interoperability among sandbox initiatives. Cross-border sandbox collaborations, mutual recognition schemes, and the alignment of regulatory standards, particularly within the context of the EU’s Digital Finance Strategy, would enhance scalability opportunities for FinTech firms and facilitate seamless international expansion.

Third, enhancing accessibility and outreach must be prioritized to ensure that regulatory sandboxes do not disproportionately favor well-resourced entities. Simplifying application procedures, providing regulatory coaching, and actively engaging underrepresented innovators—including micro-enterprises and startups from less developed regions—would contribute to a more inclusive innovation ecosystem.

Fourth, it is essential to develop structured post-sandbox support mechanisms. Clear transition pathways from experimental testing phases to full market authorization would not only sustain innovation momentum but also reinforce compliance standards and consumer protection as firms scale their operations.

Finally, integrating insights generated through sandbox experimentation into broader legislative and regulatory processes would enable more adaptive, evidence-based rulemaking. Leveraging sandbox learnings systematically could ensure that financial regulation remains responsive to technological evolution, balancing the twin imperatives of fostering innovation and safeguarding market integrity.

5.3. Limitations and Future Research Directions

This study presents several limitations that should be acknowledged and addressed in future research.

First, the analysis relies exclusively on secondary data, such as regulatory documents, policy evaluations, and scholarly literature. While these sources are authoritative and diverse, they may not fully capture the perspectives of key stakeholders, such as FinTech firms, regulators, or investors. The absence of primary data, such as interviews or surveys, limits the depth of understanding regarding the experiential aspects of sandbox participation and institutional behavior. As McCallum and Aziakpono [20] highlight in their study on South Africa, incorporating stakeholder interviews allows for triangulating formal regulatory discourse with actual implementation experiences.

Second, the study’s focus on three jurisdictions—while offering valuable comparative insights—may constrain the generalizability of findings to other contexts. The selection aimed to represent diversity in regulatory maturity, but further research could broaden the sample to include additional emerging economies or jurisdictions experimenting with novel sandbox models (e.g., Latin America and the Middle East).

Third, while the coding process was carefully structured and internally validated, the manual nature of the qualitative content analysis inevitably involves subjective interpretation. The absence of inter-coder reliability testing is a methodological limitation. Future research could employ team-based coding or digital-assisted content analysis tools to strengthen robustness.

Lastly, this study primarily addresses regulatory and innovation outcomes, but further work is needed to explore distributional effects, such as how sandboxes affect different types of FinTech firms (e.g., incumbents vs. startups) or whether they reinforce structural inequalities in access to finance and innovation resources [11,12].

Overall, the study opens several avenues for future research, including stakeholder-driven evaluations of sandbox processes, impact assessments on financial inclusion and technology diffusion, and design-oriented studies on how sandbox frameworks can be optimized for emerging markets.

6. Conclusions

This study has examined the role of regulatory sandboxes in facilitating FinTech innovation and supporting market entry across three distinct regulatory environments: the United Kingdom, Singapore, and Hungary. By employing a qualitative multiple-case study approach, the analysis has identified key institutional, procedural, and contextual factors that shape the effectiveness of sandbox initiatives.

The findings confirm that regulatory sandboxes can serve as catalysts for innovation, particularly by reducing regulatory uncertainty, fostering firm–regulator collaboration, and providing credibility to early-stage FinTech firms. However, the impact of sandbox participation is highly dependent on institutional maturity, design characteristics, and broader regulatory coherence.

The UK and Singapore exemplify how well-designed sandboxes embedded in innovation-friendly ecosystems can accelerate product development and investment. Hungary, while still developing its framework, offers valuable insights into the potential and limitations of sandboxing in emerging market contexts. This highlights the importance of contextual adaptation rather than one-size-fits-all models.

The study also contributes to the literature by integrating recent theoretical and empirical work on regulatory responsiveness, governance quality, and EU-level coordination challenges, particularly through the lenses of Allen [11], Ringe and Ruof [13], and Ahern [12]. In doing so, it underscores the importance of sandbox design choices—including eligibility criteria, oversight structures, and the scope of exemptions—in determining policy outcomes.

From a policy perspective, the results suggest that sandboxes are most effective when combined with strong supervisory engagement, institutional readiness for adaptive governance, and mechanisms for cross-border policy learning—especially in the fragmented EU landscape.

Future research should expand on these findings through stakeholder-based inquiry and longitudinal impact assessment. As jurisdictions increasingly adopt sandbox frameworks, nuanced and evidence-based design becomes critical to ensuring that these regulatory tools achieve their intended balance between innovation and oversight.

The comparative qualitative analysis confirms that regulatory sandboxes influence FinTech innovation in context-specific ways, shaping firms’ access to funding, product development speed, and market integration, thus directly addressing the research questions outlined in Section 1.