Financial technology (or fintech) describes the application of technology to support or enable banking and other financial services. Such new applications are now transforming business models throughout the world and changing the face of the industry. Yet these changes will enable more secure and efficient financial services as well as promote financial inclusion, bringing benefits to an ever expanding body of customers.
As the government encourages innovation in fintech services, consideration must be given to the regulatory barriers and difficulties that businesses may encounter. To provide a secure, lightly regulated environment where providers may experiment with the development of innovative fintech products, services and business models, the Executive Yuan approved a draft of a financial technology innovative experimentation act on May 4 of 2017. This bill was then passed into law by the Legislative Yuan on December 29 of the same year. The act allows providers to test the feasibility and effectiveness of new technology to deliver financial services in a controlled-risk environment unencumbered by existing regulatory restrictions.
II. Taking the global lead with financial regulatory sandbox law
Innovative experimentation with new financial technology is conducted within a framework of regulations that is known as a financial regulatory sandbox. Taiwan is the first country in the world to enact legislation specifically establishing such a framework. This mechanism for innovative experimentation avoids the pitfalls of regulatory infractions as operators pursue more rapid development of fintech services that will enhance Taiwan's financial competitiveness. At the same time, measures are in place to protect consumer rights and maintain market order, with an emphasis on responsible innovation.
III. Setting up mechanisms for fintech innovation and experimentation
■ For innovative experimental projects, both financial and non-financial services companies alike will be able to seek approval from the Financial Supervisory Commission (FSC), so long as such trials fall within the scope of chartered financial services approved by the FSC.
■ There are no restrictions on the types of entities that may apply. Natural persons, sole proprietors, partnerships and corporations—as well as non-residents represented by an agent—are all eligible to submit applications.
■ Innovative trials may run for up to one year, with a single six-month extension permitted where necessary. However, where cases involve legislation awaiting amendment, more than one extension is allowed, and trials may run for a total of up to three years.
■ Upon the conclusion of a service trial, an operating license may be sought under the appropriate regulations as determined by the nature of the business.
■ For experimental technologies that prove innovative and promise more efficient service delivery, lower costs of use, and greater benefits for consumers and companies, the FSC will take the initiative to review and revise regulations as necessary, as well as offer assistance and provide referrals to other agencies and organizations for guidance.
■ The FSC will establish mechanisms to furnish assistance and provide guidance to fintech service providers.
■ The FSC will enact measures to protect the rights and interests of consumers participating in approved trials. The commission will also have the authority to revoke permits mid-project where innovative experimentation may significantly impact financial markets or threaten the rights and interests of trial participants.
As a wave of new fintech services builds, the government has passed tailored legislation to promote related development and create a mechanism for innovative experimentation. With Taiwan moving toward an optimized environment for innovation and entrepreneurship, cooperation between financial and non-financial services companies will accelerate as firms race to seize fintech business opportunities, and in the process raise the competitiveness and quality of Taiwan's financial services.