Sandbox Regulatory Strategy and Its Limitations

Chang-hsien Tsai, National Tsing Hua University, Taiwan.

Ching-Fu Lin, National Tsing Hua University, Taiwan.

Han-Wei Liu, Monash University, Australia.

-- Faced with the challenges posed by the rise and evolution of disruptive technologies and innovations, countries have adopted differing regulatory approaches and adapted institutional structures and norms to maximize benefits while mitigating risks. Among such regulatory endeavors, the regulatory sandbox, first adopted by the UK for the financial sector, stands out as a prominent mechanism to strike a balance between promoting technological innovations and ensuring market order. Given the promises of the regulatory sandbox, there has been a gradual embrace of this approach by governments across continents. While such global norm diffusion evidences the emergence of the sandbox approach as a default option for regulators to cope with challenges posed by disruptive technologies and innovations, are there any concerns or limitations?

The geographic diffusion of the sandbox approach has also been accelerated by a trans-governmental endeavor that aims to facilitate cooperation among regulators and convergence in regulation through multilateral forums and bilateral arrangements. The sandbox approach has also gone beyond the financial sector and touched upon various other regulatory areas, given the cross-border nature and implications of many disruptive technologies and innovations. As we discuss in our recent paper, "The Diffusion of the Sandbox Approach to Disruptive Innovation and Its Limitations," Canada, Japan, Singapore, and Taiwan recently applied the sandbox approach to energy, environmental, healthcare, and transportation issues. All these developments evidence the rise of the sandbox approach to regulating disruptive technologies and innovations in different sectors at the national, trans-governmental, and global levels, which has crucial theoretical and practical implications.

However, there are formidable limitations to the rise of the sandbox approach. By way of an in-depth and thorough analysis on Taiwan’s aggressive use of sandbox regulation in the areas of financial services, unmanned vehicles, and more recently, artificial intelligence, we argue that the legal origin, regulatory culture, domestic political economy in the local context all play a crucial role in shaping path dependence and institutional inertia nested within regulatory agencies, which may undermine the effective implementation of the sandbox approach. One must not take the face value of the sandbox approach—It is those complicated local contexts, seen or embedded, that will define the ultimate contour of the global sandbox approach in the long run.

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