University of Cincinnati Law Review


With the worldwide revolution in financial technology (“FinTech”), Peer-to-Peer (“P2P”) lending, an alternative funding channel, has grown rapidly over the past decade. P2P lending benefits digital financial inclusion by providing an online platform to facilitate direct trades between borrowers and lenders with limited intermediation by traditional financial institutions. During P2P lending transactions, a significant amount of transaction records are accumulated, thus creating a FinTech-driven credit assessment mechanism to help underserved borrowers, who are often turned down by traditional financial intermediaries, obtain credit. P2P lending business models as well as government responses to those models differ. For example, the United States has been reactive, requiring platforms to fully comply with the extant securities regulation, while China, though initially hands-off, has also become reactive, limiting P2P platforms to the information intermediation model due to a series of P2P failures. Taiwan’s regulatory response to P2P lending, led by its Financial Supervisory Commission (“FSC”), the sole financial market watchdog in Taiwan, started as reactive, warning that the P2P lending industry should not cross four major red lines drawn under existing regulatory and business structures. The Taiwanese government, however, has become more proactive—at least in form, introducing the Financial Technology Development and Innovative Experimentation Act (the “FinTech Sandbox Act”) to permit cautious regulatory experimentation. Though a positive effort, this act may, in substance, be an ineffective means to address the regulatory dilemma between prudential regulation and financial competition and innovation. This is because the government lacks the institutional incentive to replace the existing regulatory regime with something truly proactive. We propose a structural change in the current institutional design that could reallocate the authority of financial competition and innovation to a more motivated financial agency, separate from and independent of the FSC, that would be better positioned to safeguard financial competition and innovation enabled by FinTech.