Understanding policy diffusion mechanism of financial regulatory innovation: the experience of Taiwan

ABSTRACT This paper thoroughly examines the adoption of the financial regulatory sandbox regime in Taiwan. As the first civil law country that has promulgated a new law to implement this regime, Taiwan contributes towards and embodies an archetype of policy diffusion mechanisms of financial regulatory innovation. The discussion on sandbox diffusion remains incomplete in the literature, and this paper is an attempt to fill in the gaps. Our analysis suggests that financial regulators, the legislative branch, foreign regulators, government-supported fintech hubs, and private institutions are all affiliated in this process of policy diffusion. Forerunner states provide essential references and sometimes offer direct assistance to help promulgate the sandbox regime. This paper also explores the three main diffusion mechanisms: competition, learning, and emulation, which have all played different roles in this process of diffusion. Despite different and sometimes conflicting interests, stakeholders are concerned with fintech-related regulatory issues. Their shared interests in the regulatory sandbox regime result from a strong consensus, thus leading to the successful enactment of sandbox legislation. Taiwan’s case study holds policy implications on how a civil law country adopts financial regulatory innovation and through which mechanisms the popular regulatory sandbox was diffused into the country.