The Financial Supervisory Commission on Friday presented a draft bill for a “regulatory sandbox” which would allow businesses to experiment with financial technology (fintech) innovations in a loosely regulated environment. However, it remains to be seen whether the bill will make its way to the legislature later this month, clear the legislative floor by the end of this year and, most importantly, help generate innovative solutions for the financial industry and support growth of the related ecosystem as expected.
Taiwan’s move to create this specially designed mechanism — enabling interested businesses to test their fintech concepts with exemptions on regulatory rules and legal liabilities — follows the example of several other nations in dealing with the emergence of fintech activities. It is hoped that through the implementation of an isolated sandbox, the financial industry can grow faster and become even more diversified, making further contributions to Taiwan’s economic growth and employment.
However, achieving positive results will hinge on how participating businesses can interact with regulators and industry professionals, as well as whether they can understand each other during the experimentation period.
As fintech products involve a wide range of services, including payment, investment, financing, insurance, big data analysis and information security, sound interactions and communication will enable fintech developers to contain the consequences of failure and reach the best solution for end users. It will also help regulators embrace what fintech has brought to the market and keep up with changes in the financial industry.
In other words, the sandbox bill is a process in which all parties are to make sure which new services or applications are suitable for the market and which are not — not a goal in and of itself.
Thus, the role of regulators is not limited to the design of an isolated sandbox. Rather, regulators must play a more aggressive role as a leading force in activating this mechanism.
In addition to serving as a supervisor of market development, regulators must facilitate fintech innovation by helping participants gain access to capital, shrink their applications’ time to market and navigate the regulatory framework.
Moreover, to meet the needs of an ever-changing financial industry and to have the capacity to manage fintech’s wide impact, regulators need to engage in extensive consultations with law experts and industry professionals to solve issues of regulatory requirements and amend the laws accordingly.
The question is how the commission can achieve this goal with its current manpower and organizational structure. If the commission must be charged with the dual task of serving as supervisor and facilitator of fintech development, is it possible to establish a new bureau at the commission?
Or, if the Executive Yuan is considering launching a new Cabinet-level fintech office, is there any department that can serve as a platform for cross-ministerial coordination and cooperation to develop policies to support fintech development?
If not, does it mean that the government just plans to request the commission to deal with fintech issues through whatever ad hoc arrangements it can make, which suggests potential risks to consumers, the businesses and the economy?
The commission’s push for a regulatory sandbox is a step in the right direction. Its final draft has provided a longer adjustment period for participants to satisfy regulatory compliance, and will subject them to mediation and reasonable settlement terms in the event of disputes with consumers.
However, the establishment of the mechanism also indicates a greater responsibility on the government’s side, with much work remaining.
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