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The Financial Supervisory Commission Announced the Draft Regulations Governing Fintech Innovation Experiments

Robin Chang/Cyun-Ren Jhou


The Statute for Fintech Development and Innovation Experiment (the "Statute") has been promulgated by the President on January 31, 2018. To perfect the operation of fintech innovation experiments, on March 9, 2018 the Financial Supervisory Commission (FSC) announced its proposal of the draft Regulations Governing Fintech Innovation Experiments (hereinafter referred to as these "Draft Regulations") pursuant to Paragraph 1 of Article 18 of this Statue. Key points from these Draft Regulations are summarized as below:
 
I.        Establishing rules regarding the application for, extension of and changes to the innovation experiments
1.       In applying for an extension of the experiment period, the applicant shall submit to the FSC an application where the following matters shall be specified, and the FSC shall dismiss the same if the plan for such experiment is unreasonable or unfavorable to financial markets, or have adverse impact on the rights and interests of the participants in the innovation experiment or fails to effectively improve the execution of the experiment in accordance with Paragraph 2 of Article 14 of this Statue: (Article 3 of these Draft Regulations)
(1)   The execution of the innovation experiment and the benefits achieved.
(2)   Reasons for extending the experiment period.
(3)   Extended experiment period and the expected benefits.
(4)   Disputes arising from the experiment period and the resolution thereof.
(5)   The implementation of the timely improvement required by the FSC pursuant to Paragraph 2 of Article 14 of this Statue shall be explained.
(6)   Other matters that shall be specified as required by the FSC.
2.       In the approved innovation experiment, the important matters may not be changed. Important matters shall mean performance of an innovation experiment where the financial busninesses requires the special permit, approval or license issued by FSC, employed technological innovation or innovative approaches to operation models and assessment criteria for achieving the experimental benefits. An application for such changes shall be submitted to the FSC, provided that the changes applied for may not involve any of the important matters relating to the financial business being experimented. (Article 4 of these Draft Regulations)
 
II.    Specifying the review criteria for the application for the innovation experiment
1.       The size of the innovation experiment refers to the number of the participants in the experiment and the amount of money involved therein. Pursuant to Article 5 of these Draft Regulations, the applicant shall set out the maximum amount for the financial products or services that a single participant may offer; provided, however, that such maximun amount may be reduced or increased as resolved by the review meeting. (Article 5 of these Draft Regulations)
2.       The FSC's review criteria required by Article 7 of this Statue, including innovativeness, enhancement of the efficiency in providing financial services, reduction of operating and access costs or promoting customer and corporate interests, assessment of the potential risks, establishment of participant protection measures and other assessment items. The FSC shall dismiss the application if the application documentation is imcomplete or fails to meet the review criteria set forth in Chapter 3 of these Draft Regulations. (Articles 6 to 10 and 12 of these Draft Regulations)
 
III.Providing that in formulating the exit strategy for the innovation experiment plan, the applicant shall specify the regulatory matters, handling of remaining proceeds and processing of the participants’ personal data pursuant to the Personal Information Protection Act; stipulating the matters to be complied with by the applicant when implementing the exit alternative. (Articles 11 and 19 of these Draft Regulations)
 
IV.Applicants shall establish the participant protection measures
1.       The applicant shall, based on the scope, period and size of the innovation experiment, allocate reasonable personnel and resources, formulate and execute the participant protection measures and prepare an adequate compensation plan, which includes declaration of trust or performance guarantee by a bank. (Article 13 of these Draft Regulations)
2.       The applicant shall establish proper precautions, including participant suitability assessment, notification and disclosure of the important contents and all of the risks involved, ways of holding advertising and soliciting activities, dispute resolution and compensation, protection for funding regarding the reception of payments and payment obligations, protection of personal data and information security maintenance. (Article 14 of these Draft Regulations)
3.       For the effective segregation of the risks that may affect the participants’ interests, the accounting for the innovation experiment shall be independent; in addition, there shall not be any conflict of interest or other conduct that may affect the participants’ interests in the personnel arrangement for the innovation experiment business and for other businesses, cross-utilization of information and sharing of the operational equipment and site. (Article 15 of these Draft Regulations)
4.       In order for the participants to understand the content of and the rights and obligations in connection with the innovation experiment, the matters to be specified in the agreenebr entered into by and between the applicant and the participants shall include the matters to be notified under the Personal Data Protection Act. (Article 17 of these Draft Regulations)
5.       Information security shall be ensured in the innovation experiment, and the reporting of third-party invasion into the information system and the compensation mechanism shall also be established. (Article 18 of these Draft Regulations)
 
V.    Supervision and management of the innovation experiment
1.       The applicant shall submit regular reports at the FSC’s request as well as exception reports under certain circumstances within a deadline for such submission as may be designated by the FSC. (Articles 20 to 22 of these Draft Regulations)
2.       The applicant shall provide information and explanation when the FSC sends its personnel to carry out an on-site visit and inteview. (Article 23 of these Draft Regulations)

  


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