How about something in between? A rider and a manufacturer can work together to design a new bike for that rider, but for actual races the manufacturer has to build an instance of that bike under supervision of race officials and turn it over to them, and it is that instance that the rider must use in the race. Once the bike is turned over to race officials, no one is allowed unsupervised access.

That allows innovation, while making it much harder for a rider and team to cheat.