Author
Mr Liu Shu Kai
Organisation/Institution
City University of Hong Kong, School of Law
Country
HONG KONG (SAR OF CHINA)
Panel
Banking and Finance
Title
Quid Pro Quo in Experimental FinTech Regulation: A Law & Economics Framework for Revocability and Knowledge Diffusion in Mainland China, Hong Kong, and Singapore
Abstract
FinTech regulation often employs experimentalist mechanisms, such as regulatory sandboxes, to enable controlled innovation through selectively granted exemptions. In practice, however, the competitive advantages conferred by temporary privileges often persist beyond exit. The privatization of experimental outcomes and risk information further entrenches these advantages, distorts fair competition, and limits regulatory learning. Sandbox participants often obtain regulatory benefits while incurring minimal institutional cost or public obligation—resulting in a non-reciprocal grant of benefits and exposing an imbalance between privileges and public return. To address this, the paper proposes a law and economics framework that reconceptualizes temporary privileges as an institutional quid pro quo—only justified if net social welfare is positive. This requires weighing the benefits of innovation and knowledge diffusion against the costs of risk externalities, administrative costs, and competitive distortion. The proposed quid pro quo exchange must satisfy two principles. First, the Principle of Revocability, as its boundary constraint, requires clear termination conditions to ensure the temporality of the Quo—granted privilege—and prevent residual competitive advantages. Second, the Diffusion-for-Privilege Principle, as its legitimizing basis, mandates disclosure of experimental results and risk information to convert them into public knowledge—the Quid—as reciprocal return. Applying this framework to sandboxes in China, Hong Kong, and Singapore finds that although Hong Kong and Singapore provide exit mechanisms, their triggers are decoupled from knowledge output, and knowledge-diffusion obligations are underdeveloped. China’s regime lacks clear rules for either principle. Finally, the paper recommends: for Revocability, clarifying sunset clauses, exit mechanisms, and post-exit competitive neutrality restoration safeguards; for Diffusion-for-Privilege, defining disclosure scope and the boundary between public knowledge and trade secrets. It reframes FinTech experimental regimes as conditional legal arrangements grounded in quid pro quo, thereby mitigating competitive distortion, promoting knowledge diffusion, and improving welfare. Keywords: FinTech Regulation; Experimentalism; Knowledge Diffusion; Institutional Design
Biography
Liu Shu-Kai is a Ph.D. Candidate in Law at the School of Law, City University of Hong Kong, funded by the Hong Kong PhD Fellowship Scheme. His research focuses on FinTech Regulation, Financial Regulation, Law & Economics, and Empirical Legal Studies, with additional interests in Innovation Regulation and Law & Technology, particularly in Asian contexts. His dissertation, “Regulatory Sandbox: A Comparative Analysis of the Impact on FinTech Competition,” examines how sandbox design across jurisdictions affects market competition. His recent work includes “The Development of Law and Economics Scholarship in Hong Kong” (with Lauren Yu-Hsin Lin), Asian Journal of Law and Economics, 16(1) (2025): 7–20. He presented research at the 2025 Annual Conference of the Asian Law and Economics Association; another paper was accepted for presentation at the 2025 Annual Meeting of the Asian Law and Society Association. Before his doctoral studies, he completed the European Master in Law and Economics (Hamburg University/Erasmus University Rotterdam/Aix-Marseille University), an LL.M. at the University of Pennsylvania Law School, and a Juris Master at Tsinghua University School of Law. He previously served as International Associate Editor of the University of Pennsylvania Journal of International Law (SSCI) and as Associate Editor of the University of Pennsylvania Journal of Law and Social Justice. He also worked as a research assistant at City University of Hong Kong on the RGC GRF project “Corporate Compliance and Big Data Governance: China’s Corporate Social Credit System.” He holds the PRC Legal Occupational Qualification Certificate.
