From Regulatory Sandbox to Institutional Innovation: The Next Step for Taiwan's FinTech Legislation

In 2018, Taiwan passed the Financial Technology Development and Innovative Experimentation Act, becoming one of the earliest jurisdictions in Asia to establish a regulatory sandbox system. This legislation demonstrated Taiwan's determination to embrace financial innovation. However, seven years on, we must candidly face a reality: the regulatory sandbox is a starting point, not a destination. The pace of global FinTech development has far outstripped the sandbox experimentation framework -- from the global circulation of stablecoins to AI-driven credit assessment, from embedded finance to the rise of decentralized finance (DeFi), Taiwan's financial legal system faces an urgent need for comprehensive upgrading. As a scholar who conducted comparative research on global FinTech regulation at the Cambridge Centre for Alternative Finance (CCAF) at the University of Cambridge, and who has long approached financial regulatory design with doctoral-level training in law, I believe Taiwan needs more than patching the gaps in existing regulations -- it needs a paradigm shift in legislation centered on institutional innovation.

I. Sandbox Achievements and Limitations: A Seven-Year Review

Taiwan's regulatory sandbox system (officially termed "Financial Technology Innovation Experimentation") was modeled after the Regulatory Sandbox first introduced by the UK Financial Conduct Authority (FCA) in 2016. Its core concept is: within a controlled environment, FinTech firms are temporarily exempted from certain regulatory requirements to provide innovative financial services on an experimental basis. If the experiment succeeds, regulators then amend regulations accordingly to accommodate the innovation.^[1]

Taiwan's sandbox system has commendable aspects in its design. Compared to some countries where sandbox mechanisms are authorized merely by executive orders, Taiwan enacted dedicated legislation to give its sandbox a clear legal status -- a more rigorous approach from a rule-of-law perspective. However, seven years of practice have also exposed several structural limitations.

First, the sandbox application threshold and review process are excessively cumbersome. From application to approval, the process often takes six to nine months. For speed-driven FinTech startups, this time cost can be sufficient to erode their competitive advantage. By comparison, the Monetary Authority of Singapore (MAS) launched "Sandbox Express," compressing the review period to 21 business days and dramatically reducing waiting costs for startups.^[2]

Second, the "regulatory bridging" mechanism after sandbox graduation is insufficient. After a successful sandbox experiment, firms need to obtain formal financial licenses to operate. But Taiwan's existing financial regulations -- the Banking Act, the Insurance Act, the Securities and Exchange Act -- were designed for traditional financial business models, and their sector-specific regulatory architecture struggles to accommodate cross-domain FinTech services. A startup simultaneously involved in payments, lending, and insurtech may need to apply for multiple licenses from multiple regulators -- precisely the problem the sandbox was designed to circumvent, yet it resurfaces after graduation.

Third, the sandbox mechanism is inherently "case-based" and lacks systemic institution-building effects. Each sandbox application is handled on a case-by-case basis; even when an experiment succeeds, the experience does not necessarily translate into universally applicable regulatory amendments. During my participation in global FinTech regulation research at Cambridge's CCAF, this problem was observable across sandbox systems in multiple countries -- sandboxes successfully produced case-specific innovations but failed to catalyze systemic institutional reform. The UK FCA later recognized this issue and launched "permanent new authorization pathways" outside the sandbox, allowing certain types of FinTech firms to obtain operating qualifications directly without entering the sandbox.^[3]

These limitations are not unique to Taiwan, but they collectively point to a clear conclusion: the regulatory sandbox is the first step in modernizing FinTech legislation, but by no means the last. Taiwan's FinTech legislation needs to evolve from a "sandbox mindset" to an "institutional innovation mindset."

II. The International Frontier: The Institutional Race Among the UK, Singapore, and the EU

To chart the direction for Taiwan's next legislative step, we must understand the latest developments in global FinTech regulation. The experiences of three jurisdictions are particularly worthy of in-depth analysis.

The UK FCA's "outcomes-based regulation" represents a fundamental shift in regulatory philosophy. Traditional financial regulation is "rules-based" -- regulations prescribe in detail what firms must and must not do. But in the face of rapid FinTech iteration, rules-based regulation is always a step behind. The FCA's response was to pivot toward outcomes-based regulation -- rather than prescribing specific technologies or processes, it requires firms to achieve particular consumer protection outcomes (such as "ensuring consumers are treated fairly"), leaving the means of achievement to the firms themselves. This regulatory philosophy creates enormous room for innovation, but also places higher demands on regulatory capacity -- regulators must be able to judge whether firms' innovative solutions truly achieve the intended outcomes.^[4]

Singapore MAS's "modular licensing" system represents another significant institutional innovation. In 2020, MAS introduced the Payment Services Act (PSA), redesigning the financial licensing system around an "activity-based" rather than "institution-based" logic. Under this framework, FinTech firms apply for corresponding license modules based on their actual activities (such as digital payments, cross-border remittances, digital token trading, etc.) rather than applying for a single comprehensive license covering all operations. This not only reduces compliance costs for startups but also enables regulators to apply varying intensities of supervision more precisely to activities with different risk levels.^[5]

The EU's Markets in Crypto-Assets Regulation (MiCA) represents the world's first attempt to comprehensively regulate the crypto-asset market through legislation. MiCA officially took effect in 2023, providing a unified legal framework for stablecoin issuance, the authorization and supervision of Crypto-Asset Service Providers (CASPs), and the prevention of market manipulation. The significance of MiCA lies in ending the fragmented state of crypto-asset regulation across EU member states, giving businesses the compliance certainty of a single market. However, MiCA also faces criticism -- some industry participants argue that its compliance requirements are overly burdensome and may force smaller crypto-asset firms to relocate to jurisdictions with more lenient regulations.^[6]

The experiences of these three jurisdictions reveal a common direction in FinTech regulatory evolution: from "sector-based regulation" to "activity-based regulation," from "rules-based" to "outcomes-based," and from "case-specific exemptions" to "systemic frameworks." Taiwan's next legislative step must find a path suited to its own conditions within these trends.

III. Taiwan's Structural Challenge: The Dilemma of Sector-Based Regulation

The greatest structural obstacle facing Taiwan's FinTech legal framework is its sector-based regulatory architecture. Taiwan's financial supervision is organized by "institution type" -- the Banking Bureau oversees banks, the Insurance Bureau oversees insurance, and the Securities and Futures Bureau oversees securities -- each with its own regulatory system, supervisory logic, and administrative culture. This architecture functions smoothly under traditional financial business models but has become a bottleneck for institutional innovation in the FinTech era.^[7]

One essential characteristic of FinTech is cross-domain convergence. A digital banking platform may simultaneously offer deposit and lending, payment, insurance, and investment services; an embedded finance solution may integrate financial functions into e-commerce, social media, or transportation platforms. Under a sector-based regulatory framework, these cross-domain services face "regulatory uncertainty" -- firms are unsure which regulator to approach for licensing, and regulators themselves may encounter overlapping or vacant jurisdictions.

The deeper issue lies in the transformation of regulatory thinking. In my exchanges with financial regulatory officials across multiple countries, I have observed a universal phenomenon: the primary goal of financial regulators is "risk prevention," while the essence of FinTech is "creating new possibilities." Tension exists between these two mindsets. Excellent FinTech legislation must find a dynamic balance between risk prevention and innovation promotion -- and this equilibrium point is not fixed; it shifts with technological development, market maturity, and social acceptance.

In recent years, Taiwan's Financial Supervisory Commission (FSC) has demonstrated an actively pro-FinTech stance, including promoting Open Banking, approving digital-only banks, and advancing the integration of electronic payments. However, these efforts are primarily "incremental improvements" within the existing regulatory framework. I believe what Taiwan needs is a "structural reform" -- rethinking the fundamental architecture of financial regulation to enable a more organic response to the cross-domain convergence trends driven by FinTech.

Additionally, Taiwan's FinTech legal framework faces a unique international dimension. Taiwan is not a formal member of international financial regulatory standard-setting bodies (such as the Financial Stability Board, FSB, or the Basel Committee on Banking Supervision, BCBS), meaning Taiwan lacks a direct voice in the formation of international financial regulatory standards. However, Taiwan can compensate for this lack of participatory rights through "proactive alignment" -- voluntarily incorporating international best practices into domestic regulations. The pursuit of regulatory quality and international compatibility is itself a demonstration of soft power.^[8]

IV. Legislative Proposals: Six Proposals for Taiwan's FinTech Legal Framework

Based on comparative international analysis and a diagnosis of Taiwan's current situation, I present the following six concrete legislative proposals:

Proposal 1: Enact a Financial Technology Basic Act. Taiwan needs an overarching law to provide unified principles and a framework for FinTech regulation. This law should not replace existing statutes like the Banking Act or Insurance Act, but should serve as a guiding "framework law" -- articulating the fundamental principles of FinTech regulation (such as technology neutrality, proportionality of risk, consumer protection, and cross-border coordination), establishing cross-agency coordination mechanisms, and authorizing competent authorities to respond flexibly to emerging FinTech business models through administrative rules. The "innovation facilitation" clauses incorporated in the 2023 amendment of the UK's Financial Services and Markets Act (FSMA) can serve as a reference.^[9]

Proposal 2: Introduce an "activity-based" licensing system. Drawing on Singapore's PSA experience, an activity-based rather than institution-based licensing system should be established under the framework of the Financial Technology Basic Act. License modules should be designed according to the actual activities of FinTech firms (digital payments, lending intermediation, digital asset trading, robo-advisory, etc.), allowing companies to combine the necessary licenses based on their scope of business. Each module would correspond to different capital requirements, compliance obligations, and risk management standards -- the higher the risk of the activity, the stricter the regulatory requirements.

Proposal 3: Build RegTech infrastructure. Modernizing regulation cannot rely solely on updating laws; it also requires upgrading regulatory tools. Taiwan should invest resources in building RegTech infrastructure -- including real-time reporting systems (enabling regulators to monitor FinTech firms' operations in near real-time), machine-readable regulation (automating compliance checks), and regulatory APIs (standardizing data exchange between regulators and regulated firms). This infrastructure would not only enhance regulatory efficiency but also dramatically reduce compliance costs for FinTech enterprises.

Proposal 4: Develop a Taiwan-specific crypto-asset regulatory framework. Taiwan's current regulation of crypto-assets remains at the "anti-money laundering focused" stage -- Virtual Asset Service Providers (VASPs) must register with the FSC and comply with anti-money laundering obligations, but a comprehensive business regulatory framework is lacking. Referencing the EU MiCA framework, Taiwan should develop comprehensive regulations covering stablecoin issuance, crypto-asset exchange operations, crypto-asset custody, and consumer protection. Stablecoins deserve particular attention -- as the circulation scale of major global stablecoins (such as USDT and USDC) continues to expand, Taiwan needs to clarify the legal nature, issuance requirements, and reserve requirements for stablecoins.^[10]

Proposal 5: Establish a "FinTech cross-border cooperation agreement" mechanism. FinTech is inherently cross-border in nature. Taiwan should actively establish bilateral FinTech regulatory cooperation agreements with major FinTech hubs (such as Singapore, the UK, Japan, and Australia) -- covering regulatory information sharing, cross-border market access for sandbox graduates, and exchanges of FinTech professionals. Singapore's MAS has already signed FinTech Cooperation Agreements with over 30 jurisdictions; Taiwan has enormous room for development in this area.

Proposal 6: Establish a "Financial Innovation Office" within the FSC. A dedicated institutional window for promoting financial innovation should serve not merely as a single point of contact for businesses, but should also assume functions of regulatory research, international trend monitoring, and coordination with other government agencies. This office should possess sufficient personnel independence and professional diversity -- beyond traditional finance and legal expertise, it should incorporate cross-disciplinary talent in technology, data science, and behavioral economics. In my experience directing MBA programs at Zhejiang University, the most effective organizational innovations often emerge from cross-disciplinary team compositions, and financial regulation is no exception.^[11]

V. Institutional Vision: Making Regulation the Infrastructure for Innovation

Reviewing the evolution of global FinTech legislation, a clear trend is emerging: the most successful FinTech hubs are not the places with the most lenient regulation, but those where regulations are clearest, most predictable, and most internationally compatible. Companies choose to establish operations in Singapore, the UK, and Switzerland not because these places "lack regulation," but because their regulatory frameworks enable companies to accurately calculate compliance costs, predict regulatory risks, and formulate long-term business strategies on that basis.

In other words, quality financial regulation is not an obstacle to innovation but the infrastructure for it -- just as roads are to transportation and ports are to trade. When regulations provide clear rules of the game for innovation, capital, talent, and enterprises will converge. In my multi-country comparative research on FinTech regulation for the World Bank, this conclusion has been repeatedly validated: there is a significant positive correlation between regulatory quality and the vitality of the FinTech ecosystem.^[12]

Taiwan possesses the conditions to realize this vision. We have one of Asia's most mature democratic rule-of-law systems, high-quality financial professionals and technical talent, and a vibrant FinTech startup ecosystem. What is missing is a systemic legal upgrade -- integrating these scattered advantages into a comprehensive, internationally competitive FinTech regulatory framework.

The significance of this legislative reform extends far beyond the FinTech industry itself. It represents an opportunity for Taiwan to demonstrate its capacity for "institutional innovation" -- proving to the international community that a small-to-medium democratic rule-of-law nation has the ability to propose inspiring institutional solutions on frontier issues in global financial governance. During my years pursuing a Doctor of Laws at Nagoya University, I was deeply influenced by the Japanese legal academy's tradition of "comparative law" -- legal progress never comes from working in isolation, but is achieved through the process of comparison, learning, and localization. Taiwan's FinTech legislation is no different: it must fully absorb international best practices while ultimately responding to Taiwan's own market structure, social needs, and stage of development.

Moving from regulatory sandbox to institutional innovation is not merely a question of regulatory upgrading -- it is a strategic choice determining whether Taiwan can transform from a "follower" to a "standard-setter" in the global FinTech race. The window for this choice is narrowing, but it has not yet closed.^[13]