The background of the regulatory sandbox

The regulatory sandbox is essentially a "reactionary" and "correction" in a certain sense of the overly cumbersome regulatory requirements that have been greatly strengthened after the 2008 global financial crisis. In other words, the regulatory sandbox is a more tortuous way to leave room for financial innovation and create space for financial innovation to maintain the vitality of the financial market and international competitiveness when the relevant laws and rules cannot be revised in a timely manner to "lighten the burden" for the regulatory targets or potential regulatory targets.

Since the Great Depression in the 1930s, the development and evolution of financial regulatory systems and rules in major European and American countries is largely the result of responding to previous financial crises. This crisis-driven/responding financial supervision has two interrelated outstanding features or limitations. First, in the face of public dissatisfaction and public opinion pressure after the crisis, financial supervision is prone to overcorrection, imposing too cumbersome and harsh regulatory requirements on market entities. Second, due to the lagging nature of legal rules, it is often difficult for regulatory rules to follow up in a timely manner when the financial market recovers, thus restricting financial business operations.

The financial regulatory reform after the crisis increased the compliance obligations of financial institutions and changed their business motives and business structure. In particular, the universal banking model is directly challenged by business isolation rules, and the increase in regulatory capital has changed the motivation or ability of banks to issue low-value loans.

Financial supervision in the post-crisis era has catalyzed financial technology from at least two aspects. On the one hand, in the face of more cumbersome and stringent regulatory rules, financial institutions need new technical means to reduce compliance costs and meet regulatory requirements and compliance obligations. This more reflects the "technological" side of financial technology, or the side of serving traditional financial institutions. On the other hand, under the increasingly stringent regulatory rules and environment, the operations of traditional financial institutions have shrunk. Objectively, new business formats are needed to fill business gaps and meet market demand, which more reflects the "financial" side of financial technology, or the competition between financial technology companies and traditional financial institutions.