{
  "id": 1081746,
  "title": "SBP’s Sandbox and EU AI Act: a timing advantage for Pakistani fintechs",
  "url": "https://urgent.news/2026/08/15/sbps-sandbox-and-eu-ai-act-a-timing-advantage-for-pakistani-fintechs",
  "topic": "ai",
  "section": "AI",
  "published": "2026-08-15T17:10:14.000Z",
  "source": {
    "name": "Business Recorder",
    "slug": "business-recorder",
    "url": "https://www.brecorder.com/news/40434965/sbps-sandbox-and-eu-ai-act-a-timing-advantage-for-pakistani-fintechs"
  },
  "original_language": "en",
  "account": "In November 2025, the State Bank of Pakistan (SBP) introduced Pakistan's inaugural Regulatory Sandbox, designed to foster innovation in financial services by allowing licensed and unlicensed entities to test their products in a controlled regulatory setting. This initiative aimed to assess emerging technologies like artificial intelligence, machine learning, and blockchain, ultimately guiding the country's modern technology governance policies.\n\nThe sandbox's inaugural group included fintech providers and private banks specializing in technology-driven remittances, open banking, and remote merchant onboarding. Regulators worldwide utilize sandboxes to evaluate new technologies and establish evidence-based policies for their oversight. The SBP's sandbox plan included a clear roadmap and release strategy, with the expectation that the central bank would ultimately shape Pakistan's digital governance guidelines, as the federal government currently relies on outdated regulations for both the financial and non-financial sectors.\n\nThe sandbox's launch was particularly timely, coinciding with significant regulatory developments in AI in the European Union (EU), halfway across the world. While Pakistani firms were not directly bound by EU regulations, many rely on international technology vendors such as Temenos, Oracle, and Salesforce for managing core banking platforms, digital customer portals, and electronic payment processing. These vendors, headquartered in the EU or with substantial operations there, are directly subject to the EU AI Act's obligations for technology service providers.\n\nThe EU AI Act mandates an entirely new governance architecture for AI, including transparency requirements, mechanisms for human oversight, and continuous monitoring of high-risk AI systems. As a result, EU-based AI service providers have reported substantial increases in operational costs due to compliance efforts. These rising costs will be passed down to their clients, affecting users outside the EU and creating a ripple effect worldwide. Multinational firms and technology solution providers are expected to create two lines of products, one for EU clients and another for overseas clients, aligning with EU standards to avoid jurisdictional cost isolation. This phenomenon, known as the \"Brussels Effect,\" ensures that non-EU users pay the same prices for products compliant with EU AI Act regulations.\n\nPakistani banks, which rely on imported software and cross-border cloud infrastructure from EU vendors, face rising service costs from these international providers. The State Bank's Regulatory Sandbox offers an opportunity for Pakistani banks to mitigate these costs by encouraging the development of AI add-ons for local banks. These add-ons, tested in the sandbox, could include local AI modules for KYC/AML, fraud detection, credit scoring, and transaction monitoring. Pakistani banks can continue using imported software for their core systems while adopting locally developed AI functionalities from successful sandbox participants. This approach would allow banks to maintain operational continuity while insulating themselves from the incoming compliance costs associated with the EU AI Act.",
  "summary": "The State Bank of Pakistan (SBP), as part of its Vision 2028 strategy , launched the country’s first Regulatory Sandbox for financial services in late 2025. Licensed and non-licensed entities were both invited to apply for this inaugural cohort, where they would test their innovative products with real consumer data, in a controlled regulatory environment. The regulator released details of the…",
  "key_points": [],
  "editors_take": null,
  "illustration": null,
  "coverage": {
    "outlets": 1,
    "also_reported_by": []
  },
  "ai_generated": true,
  "disclaimer": "Summaries, key points and the editor’s take are written by software from other outlets’ reporting and may contain errors — always check the linked original."
}