Act on Financial Technology Innovations and Experiments

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The Sandbox Act is a piece of legislation that enables fintech companies to test the feasibility and effectiveness of their innovative products and services in a controlled-risk environment.
What are the main aims and objectives?
The main objectives of the Sandbox Act, also known as the Act on Financial Technology Innovations and Experiments in Taiwan, are primarily to foster financial innovation and facilitate the growth of fintech businesses. The act allows these businesses to test their financial technologies in a controlled regulatory environment. Through this controlled-risk environment, the act is designed to pave the way for innovative experimentation and potentially lead to new licenses or approvals for businesses once existing laws and regulations have been amended. Additionally, the act is intended to support fintech developments and provide assistance to fintech startups, thereby contributing to the broader financial innovation initiatives in Taiwan. The Act is a part of Taiwan's broader initiatives to foster financial innovation, which also includes the use of blockchain technology, robo-advisors, and electronic payments. 
How does the program work?

The Sandbox Act allows for "innovative experimentation", involving technological innovation or business model innovation to undertake experimentation. It grants approval for projects for up to a year, with the possibility of a six-month extension. The Financial Supervisory Commission (FSC) provides guidance and assistance, and can also revoke permits if the trials threaten financial markets or the rights of participants. 

The Act stipulates that proposals from firms which have passed an assessment to use the sandbox are allowed to bypass — in part or in full — certain regulations after gaining the approval of the Financial Supervisory Commission (FSC). 

The FSC is to consult responsible agencies when it wants a test financial service to be exempted from certain rules, with the exception of the Money Laundering Control Act and the Act Against the Threats of Hacking, which cannot be exempted. 

A review committee is established under the FSC to review plans. To promote innovation, the committee is required to hire experts from the private sector for between one-third and half of its staff, with the rest composed of representatives from government agencies. 

To avoid profitability being harmed by red tape, the committee is to decide within 60 days of a submission whether it qualifies for the sandbox. Approved plans are then given an 18-month time frame within which firms are allowed to launch trial runs of their services. The 18-month period may be extended to no more than 36 months at the discretion of the FSC. 

The review committee is to submit a report to the Legislative Yuan detailing the results of a project and which regulations should be changed within 90 days of the end of a trial, so that a new service may be put on the financial market after necessary legal amendments are approved. 

People who experience financial losses as a result of their participation in a financial service test are protected by the Financial Consumer Protection Act and should file complaints with the Financial Ombudsman Institution. 

What is the overall cost?
There is no available information about the running costs associated with the Sandbox Act. However, research by the World Bank Group and the Consultative Group to Assist the Poor (CGAP) found the regulatory sandboxes can cost over $1 million to run once human resources and salaries are factored in.  
How was it implemented?
The Executive Yuan approved a draft of a financial technology innovative experimentation act on May 4 of 2017. This bill was then passed into law by the Legislative Yuan on December 29 of the same year. The act was promulgated on 31 January 2018 and took effect on 30 April 2018. 
What impact has been measured?

There is currently no available information about the impact the Sandbox Act has had in Taiwan or the level of participation it has received. 

What lessons can be learned?
Critics have argued that the Act is too restrictive and lacks clear guidelines. They believe that the two-year trial period for businesses is inadequate and may discourage innovation. Another criticism of the Sandbox Act is the lack of 'passporting rights', which means companies in Taiwan cannot automatically offer their services in other jurisdictions without obtaining separate licenses. This can limit the global reach of Taiwanese fintech companies. Furthermore, it has been suggested that the Sandbox Act's approval process is opaque and not transparent enough, creating uncertainty for businesses. This could potentially discourage foreign fintech companies from entering the Taiwanese market. 

CURATED BY

Xin-Wu Lin

Vice President
Taiwan Institute of Economic Research
Taiwan