The FCA has set out progress on its new five‑year strategy, launched last year to overhaul its processes and embrace new technology, with the regulator aiming to position itself as a data‑driven, digitally enabled leader for British innovation.

According to the FCA’s report, Innovation Insights 2025, the relentless pace of tech development and the UK’s highly competitive fintech ecosystem have led firms to look for regulatory clarity earlier, resulting in a spike in the number of businesses testing their products through FCA sandboxes.

Applications for the financial watchdog’s Regulatory Sandbox and Innovation Pathways rose 49% last year, with payments and digital assets firms accounting for more than a third of access requests (35%).

The FCA said most of these came from payments and cryptoasset providers, looking to get ahead of the government’s final rules for crypto activities before regulations are enforced next year, with a notable spike in use cases focused on blockchain-enabled payments, including the use of stablecoins and smart contracts.

However, projects involving AI, of course, made up a significant portion of applications across all sectors (31%), with the FCA seeing more firms use the technology to deliver highly tailored guidance and support based on personal financial data and user behaviour.

More than three-quarters of applications featured a retail component, while 87% originated from startups with fewer than ten employees, suggesting that consumer-facing firms are driving experimentation in a race to ensure compliance before hitting the mass market.

That said, regtech propositions continued to account for 8% of 2025’s submissions, with regtech firms making up 38% of applications to the FCA’s Superchanged Sandbox, a collab with NVIDIA designed to help firms experiment safely with AI.

Interest in regtech has climbed as more highly regulated firms look to embed AI-enabled or automated compliance tools, a niche investors have been quick to capitalise on with £557.1 million raised last year and another £99.7 million in Q1’26.

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Looking ahead, the report lays out the FCA’s intention to focus on establishing clearer testing criteria, increasing uptake of innovation services, and broader engagement with industry, particularly in wholesale markets and general insurance.

“The fintech market is maturing, although levels of maturity vary,” said Jessica Rasu, FCA executive director, and Colin Payne, head of innovation, writing in the report’s foreword.

“In this environment, safe testing and clearer regulatory pathways become more important, so for us this means supporting innovation in a way that has the greatest value – focusing on what’s viable, what’s responsible, and what can deliver meaningful benefit.”