Vilnius University
Vilnius University
2025-04-05
The first FinTech regulatory sandbox (FRSB) was launched by the United Kingdom in 2016.
They offer a framework for innovative firms to test products with real customers in a controlled environment (Schueffel 2017).
What leads governments to promote or curtail the development of new Financial Technologies (FinTech)?
We find strong evidence that the level of e-government development and public integrity are associated with a higher likelihood of adoption in middle income countries, but not so for high- or low-income countries.
Research on FinTech has focused on its impact on economic indicators such as GDP growth (Kanga et al. 2021; Cevik 2024; Daud et al. 2022) or financial stability (Cornelli et al. 2023; Cevik 2023).
Ba and Şen (2024) find that democracies are less likely to enact bans on cryptocurrencies. Raudla et al. (2024) find that that policy learning and the institutional architecture of financial supervision affect FinTech policies.
Ranchordas and Vinci (2024) warn that under conditions of low transparency, sandboxes could be subject to regulatory capture.
FRSBs Worldwide (2023)
| LIC | MIC | HIC | |
| PUBLIC_INTEGRITY | 0.16 | 0.32* | -0.41 |
| (0.60) | (0.19) | (0.26) | |
| EGOV_INDEX | 1.56 | 0.42** | 0.65 |
| (0.99) | (0.20) | (0.50) | |
| ELECTORAL_PROCESS | 0.25 | 0.05 | -0.14 |
| (0.25) | (0.05) | (0.12) | |
| FIN_GLOBALIZATION_DF | -0.03 | 0.16 | 0.30 |
| (0.37) | (0.13) | (0.28) | |
| OECD | -0.36 | -0.32 | |
| (0.86) | (0.78) | ||
| EU | -0.03 | -0.34 | |
| (0.88) | (0.78) | ||
| COMMON_LAW | -4.47 | 1.09*** | 0.37 |
| (1,568.51) | (0.40) | (0.62) | |
| LOG_GDP | 0.43 | 0.24* | 0.003 |
| (0.70) | (0.12) | (0.16) | |
| —– | — | — | — |
| WB Region | Y | Y | Y |
| McFadden R-sq | 0.472 | 0.327 | 0.214 |
| N. Obs | 25 | 102 | 53 |
| Observations | 25 | 102 | 53 |
| Akaike information criterion | 33.22 | 123.18 | 85.63 |
| Notes: | p < .01; p < .05; p < .1 | ||
| POL | ECON | POOL | INTER | |
| ELECTORAL_PROCESS | 0.02 | 0.02 | 0.02 | |
| (0.04) | (0.04) | (0.04) | ||
| PUBLIC_INTEGRITY | 0.04 | 0.02 | 0.88** | |
| (0.12) | (0.13) | (0.37) | ||
| EGOV_INDEX | 0.51*** | 0.47*** | 1.09*** | |
| (0.14) | (0.15) | (0.28) | ||
| FIN_GLOBALIZATION_DF | 0.25*** | 0.13 | 0.17 | |
| (0.09) | (0.10) | (0.11) | ||
| OECD | -1.03* | -0.81* | -1.03* | -0.76 |
| (0.56) | (0.45) | (0.55) | (0.50) | |
| EU | 0.43 | 0.15 | 0.34 | 0.14 |
| (0.55) | (0.44) | (0.53) | (0.53) | |
| INCOME_GROUPMIDDLE INCOME | -0.11 | 0.09 | -0.20 | -0.41 |
| (0.41) | (0.39) | (0.42) | (0.47) | |
| INCOME_GROUPHIGH INCOME | -1.08* | -0.31 | -1.27** | -1.19* |
| (0.61) | (0.53) | (0.63) | (0.67) | |
| LOG_GDP | 0.09 | 0.24*** | 0.12 | 0.19** |
| (0.07) | (0.07) | (0.08) | (0.09) | |
| COMMON_LAW | 0.79** | 0.77** | 0.78** | 0.87** |
| (0.36) | (0.34) | (0.37) | (0.35) | |
| PUBLIC_INTEGRITY:EGOV_INDEX | -0.13** | |||
| (0.05) | ||||
| —– | — | — | — | — |
| WB Region | Y | Y | Y | Y |
| McFadden R-sq | 0.236 | 0.18 | 0.244 | 0.277 |
| N. Obs | 180 | 180 | 180 | 180 |
| Notes: | p < .01; p < .05; p < .1 | |||
There is a significant positive association between e-government development and the likelihood of adopting FRSBs.
Similarly, countries exhibiting higher levels of institutional strength and lower corruption are more likely to adopt FRSBs.
Openness to global financial markets alone does not drive the implementation of FRSBs.
MICs with a stronger commitment to digital innovation and online public services are more inclined to implement regulatory sandboxes in the FinTech sector.
Robust institutions facilitate regulatory innovation by providing a stable environment conducive to the development and oversight of new financial technologies.
The evidence suggests that there are different trajectories of FRSB adoption
| Variable Name | Description | Distribution |
|---|---|---|
| sandbox_2023 | Whether a country had adopted and FRSB by December 2023. (Manually Collected) | Binary (1 = yes) |
| fin_glob_df | De facto financial globalization including FDI, portfolio investment, international debt, reserves and payments Haelg (2019) | Numeric: 0-10 |
| pc_gdp_log | GDP per capita (log) World Development Indicators 2023 (2023) | Numeric (log) |
| log_gdp | Nominal GDP (log) World Development Indicators 2023 (2023) | Numeric (log) |
| electoral_process | To what extent the national legislative representatives and the national chief authority are elected through free and fair elections Freedom House (2022) | Numeric: 0-12 |
| public_integrity | A composite index of the perceived overall level of corruption which captures how close countries come to the situation where everyone agrees there is no corruption (10) Standaert (2015) | Numeric: 0-10 |
| wb_region | Region by World Bank classification World Development Indicators 2023 (2023) | Categorical |
| egov_index | A composite index across three dimensions of e-government: scope and quality of online services, status of the development of telecommunication infrastructure, and inherent human capital. United Nations e-Government Survey 2020 (2020) | Numeric: 0-10 |
| digital_payments | Percentage of the adult population that had made or received digital payments in 2015. (demirgüç-kunt2022?) | Percentage |
