There is no denying that the digital economy has great potential in terms of size and scope. At the same time, digital platforms and assets are under greater regulatory scrutiny than ever before. From China to India to the US, regulators are attempting to keep operations under control or make them liable to taxation, while other countries seek to walk a fine line between financial liberalization and economic stabilization in their digitalization.
In Taiwan, financial institutions — such as banks, insurance companies, securities and futures brokerages, investment trust enterprises and asset management firms — are highly regulated and subject to licensing requirements. They also face penalties and disciplinary measures from the nation’s top financial regulator, the Financial Supervisory Commission, if they contravene laws and regulations, yet the digital revolution seems to be adding to the commission’s regulatory and supervisory challenges given the rise in fraud.
From electronic payments to Web-only banks, peer-to-peer (P2P) platforms and virtual assets, the commission has sought to promote fintech businesses that serve consumer needs in a different manner or through better technologies, following implementation in 2018 of the Financial Technology Development and Innovative Experimentation Act (金融科技發展與創新實驗條例), also known as the “Fintech Sandbox Act.”
In their present stage, P2P and virtual assets appear to be the commission’s two major focuses in promoting financial service digitalization. While the top regulator adopts a flexible approach to monitoring the two sectors, there have been calls to bolster supervision, and even impose harsh penalties if necessary.
As the commission has no intention of seeking special legislation concerning the P2P and virtual asset sectors, and does not want to act as a comprehensive regulatory body, P2P and virtual asset service provider operations in Taiwan remain largely unregulated. Instead, they mainly rely on the commisions’ guidelines and follow self-disciplinary rules jointly developed by the Bankers Association and prospective sectors to address legal, ethical, security and consumer protection issues.
Without bothering to issue licenses, perform business inspections and impose administrative sanctions, the commission’s hands-off approach is aimed at opening up opportunities for fintech-enabled financial services to develop and take shape in Taiwan. Yet compared with electronic payments and Web-only banks, the operations of P2P platforms and the management of virtual assets are prone to fraud and harm consumer rights, thus calls for the commission to step up inspection and supervision are on the rise.
For instance, P2P lending in Taiwan is still in its infancy and is subject to less regulatory oversight from financial authorities, but after P2P lending platform im.B defrauded more than 5,000 investors of an estimated NT$2.5 billion (US$79.86 million) early last year, several lawmakers and financial experts blamed the commission for failing to properly monitor or be proactive in preventing fraudulent activities.
As for virtual asset management, the commission faces the same regulatory dilemma between prudential regulation and financial innovation.
However, this problem is not unique to Taiwan. Several countries face the same difficulty and adopt a relatively conservative approach by gradually bolstering supervision instead of achieving the task in one go. When fintech brings greater convenience, the essential question remains: How can digitalization benefits be extended to all parties without hindering financial innovation and market competition?
Apart from regulatory sandboxes to permit cautious fintech experimentation and setting guidelines, the commission has to do more, such as adopting reviews and adjusting regulatory measures on a rolling basis based on operator feedback. This might be an important tasks for the commission after new legislators are sworn in on Thursday and as it celebrates its 20th anniversary this year.
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