The FSC prescribed the Administrative Rules for Innovative Financial Technology Experiments (Taiwan)

Yi-Shan Cheng

The Financial Supervisory Commission (hereinafter, the “FSC”) promulgated the Administrative Rules for Innovative Financial Technology Experiments (hereinafter, the “Rules”), consisting of 24 articles, via the Jin-Guan-Ke-10701062960 Directive of April 27, 2018.  The Rules came into effect on April 30, 2018.

The Statute for the Development and Innovative Experiments of Financial Technologies has been promulgated by the President with its effective date to be set by the Executive Yuan.  To perfect the operation of the mechanism for innovative financial technology experiments (hereinafter, the “Innovative Experiments”) and to provide a consistent standard for examining innovative experiments, the Rules are formulated to encourage innovation, protect the rights and interests of participants and promote the development of innovative experiments.  Consisting of 24 articles, the Rules are highlighted below:

Firstly, Articles 2 through 4 of the Rules provide for the application, extension and amendment of innovative experiments.  Articles 5 through 10 stipulate examination standards such as the scale of innovative experiments, the extent of their innovation, the efficiency enhancement of financial services, reduction in costs of operation and usage or enhancement of the rights and interests of consumers and enterprises, potential risks which have been assessed, deployment of protective measures for the participants and other evaluation items.  In particular, Article 5 of the Rules specifically stipulates that an applicant shall assess its funding status and risk assumption capability and set the limit of financial products or services for single participants without limiting the transactions or denomination currencies of relevant goods or services based on the nature of the financial service covered by the innovative experiment and the protective measures and proper compensation as planned.  With respect to a contract executed between an applicant and all participants during a relevant experiment period, the aggregate amount of the funds, transactions or exposure under the contract during the effective term in which financial goods and services are provided shall not exceed NT$100 million or equivalent foreign currencies.  However, an examination meeting may reduce or increase the maximum amount to NT$200 million, depending on the nature of individual business, protective measures and actual management needs.

Secondly, Article 11, Paragraph 1 of the Rules specifically stipulates matters that shall be included in the exit mechanisms of an innovative experiment plan.   The details of an exit plan proposed by an applicant shall include the triggers of the exit mechanisms, trigger timing, manners of notification and handling of personnel and procedure, negotiations, rights and obligations, termination or referral of goods or services and potential risks after exit and other matters.  To protect the rights and interests of participants, Paragraph 2 of the same article specifically provides that if an innovative experiment involves receipt of payments, the applicant shall return or handle the remaining amounts in agreed-upon manners within one month after the closing date of the experiment.

Thirdly, Articles 13 through 17 of the Rules specifically stipulate that when conducting an innovative experiment, the applicant shall put in place compliance matters such as measures to protect the participants, compensation mechanisms, risk management mechanisms, conflict-of-interest control measures, dispute handling mechanisms as well as matters that shall be specified between the applicant and the participants.  Article 18 specifically provides that an applicant shall ensure the information security of the innovative experiment and set up mechanisms through which the participants will be notified in the event of any third-party intrusion and damages will be paid.

Fourthly, Article 21 of the Rules provides for the circumstances and the deadline for the filing of irregularity reports by an applicant.  To facilitate the competent authority’s understanding of any unexpected irregularities in the course of an innovative experiment, if an applicant is subject to any circumstance where the innovative experiment may be canceled by the competent authority or there is any major change to the finance or personnel, or the innovative experiment is terminated by the applicant, any information security event takes place, or there is any public opinion report sufficient to undermine the applicant’s reputation, a report shall be submitted.

Finally, if the competent authority deems necessary, personnel may be dispatched to conduct on-site visits pursuant to Article 23 of the Rules, and the applicant shall not evade, impede or refuse.  In addition, the applicant shall accommodate by providing materials and explanation to ascertain the efficacy of the innovative experiment.