Guillaume Meyer: What is your definition of sandboxing?

Nasir Zubairi: It’s a combination of two things. It’s a learning experience for regulators. It’s also a chance for innovators to test their solutions in a controlled environment. It must be beneficial for both parties; otherwise, it’s pointless.

What approach do you recommend for Luxembourg?

There are two approaches: a regulatory sandbox or an industry-led one. The former is managed by policymakers and regulators, like the Financial Sector Supervisory Commission (CSSF). The latter is a collaboration among key financial sector players to create a controlled testing environment. Managing a sandbox is very resource-intensive. Its scope may be limited because most businesses in Luxembourg are cross-border. The business case for the industry to set up a sandbox or to combine both approaches perhaps makes more sense in Luxembourg.

How important is it for a Luxembourg startup to operate in a local rather than an international sandbox?

Most businesses here are international. It’s un­certain if a locally-controlled environment can provide the scale and return needed to justify costs and resources. What would be the scope of testing in a population of 600,000 and a highly international business market? I’m not sure there’s a viable business case.

In the financial sector, what types of AI applications could benefit from sandboxing?

There are many examples. For example, an AI-powered fraud detection solution that would benefit all parties. A sandbox could also be used to create datasets for large language models (LLMs). They would be tailored to solve industry-specific problems. A specific AI sandbox, rather than a general regulatory sandbox, could make sense for Luxembourg.

What role can the Lhoft play in sandboxing?

Educating and informing. And the Lhoft could poten­tially help set up the sandboxes if the industry agrees it’s a good strategy. A sandbox is pointless if no one understands AI. Let’s ensure people truly understand the value of AI, not just the myths surrounding it.

Some European countries are taking an aggressive approach to attract businesses through sand­boxing. Is Luxembourg at risk of being overtaken?

No, Luxembourg is small and agile. I’ve lived in nine countries. I’m genuinely impressed by how quickly this country manages to get things done.

The UK has played a pioneering role in sandboxing. Is it a source of inspiration for Luxembourg?

Absolutely. They’ve done it very well and were the first to create a regulatory sandbox. They’re the benchmark others have copied.

Does the UK have a first-mover advantage?

Not necessarily. With Brexit, the scope of opportunity for firms in the sandbox is limited to the UK only. There are other drawbacks. A regulatory sandbox can create biases, where a regulator might favour certain companies. A company in the sandbox might find it easier to open bank accounts than a similar company outside it. That’s not the regulator’s role; they must remain objective.

This article was written for the March 2025 issue of Paperjam magazine, published on 26 February. The content of the magazine is produced exclusively for the magazine. It is published on the website as a contribution to the complete Paperjam archive. Click here to subscribe to the magazine.

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