The Financial Technology Law Review: Taiwan
In recent years, Taiwan has adopted various initiatives to facilitate financial innovation with the development of technology. In particular, the Financial Supervisory Commission (FSC), Taiwan's financial regulator, published the 'Fintech Development Strategy Whitepaper' in May 2016 to demonstrate its commitment to fintech. In addition, an action plan designed by the FSC to develop Taiwan's financial sector was later unveiled in June 2018. The plan aims to spur financial innovation and implement a range of financial policies to respond to financial service demands.
Also, to promote fintech services and companies, the Taiwan government promulgated a law for the fintech regulatory sandbox, the FinTech Development and Innovation and Experiment Act (the Sandbox Act), on 31 January 2018, which took effect on 30 April 2018. The Sandbox Act was promulgated to enable fintech businesses to test their financial technologies in a controlled regulatory environment.
There are currently no tax incentives specifically provided for fintech companies.
i Licensing and marketing
No special fintech licence
In Taiwan, conducting finance-related activities generally requires a licence from the FSC. However, there is no special licence specifically targeted at fintech companies. Depending on the types of regulated activities, fintech companies must meet certain qualifications as required under relevant laws and FSC regulations.
Local marketing rules
The Financial Consumer Protection Act (FCPA) and its related regulations provide for the general marketing rules applicable to marketing materials for financial services. In general, under the FCPA, when carrying out advertising, promotional or marketing activities, financial services providers should not falsify, conceal, hide or take any action that would mislead financial consumers, and should ensure the truthfulness of the advertisements.
In addition to the general marketing rules under the FCPA, financial service providers may also be subject to additional marketing rules as specified in the laws and regulations governing specific types of financial services or products.
Automated digital advisory
Although no special fintech licence exists that is specifically targeted at fintech companies, some guidelines and operating rules have been introduced in recognition that traditional licence requirements do not address fintech. For example, the FSC has approved the 'Operating Rules for Securities Investment Consulting Enterprises Using Automated Tools to Provide Consulting Service (Robo-Adviser)' (the Robo-Adviser Rules) issued by the Securities Investment Trust and Consulting Association of Taiwan, Taiwan's self-disciplinary organisation of the asset management industry. Pursuant to the Robo-Adviser Rules, licensed securities investment consulting enterprises may provide online securities investment consulting services by using automated tools through algorithms (Robo-Adviser Services), and must comply with certain rules including, among others:
- there should be a periodical review of the algorithm;
- relevant know-your-customer procedures should be conducted before provision of advice;
- a special committee should be established to supervise the adequacy of the Robo-Adviser Services; and
- the customers should be informed of precautions before using Robo-Adviser Services.
Credit information service
Pursuant to the Banking Act and relevant regulations, an entity collecting credit-related information from financial institutions, processing such information and maintaining the relevant database and providing credit-related information and records to financial institutions for credit checking purposes must obtain prior approval from the FSC. Currently, the Joint Credit Information Center (JCIC) is the only FSC authorised entity that offers such services. In practice, a bank would normally review the credit information or records provided by the JCIC as part of the bank's credit investigation on an applicant for a credit extension.
If an entity is not considered as offering such services, no FSC approval is required, but it will still be subject to the Personal Data Protection Act (PDPA) regarding its collection and use of any personal data.
ii Cross-border issues
There is no concept of a 'passporting right' in Taiwan. To engage in regulated financial activities, a company needs to apply for the relevant licences to the FSC. As mentioned above, depending on the types of regulated activities, the applicant must meet certain qualifications as required under relevant laws and FSC regulations. Also, under current financial laws and regulations, no person is allowed to provide any financial services in Taiwan without obtaining prior approval or a licence from the FSC.
As for foreign exchange-related restrictions, for each calendar year, a Taiwanese company may, upon filing a report with the Central Bank of the Republic of China (Taiwan) (the Central Bank), purchase foreign currency with Taiwan dollars and remit the foreign currency out of Taiwan for purposes other than trade or service-related payments, in an amount up to US$50 million or its equivalent without special approval from the Central Bank. Foreign exchange purchase for purposes other than trade or service-related payments exceeding the applicable ceiling would require special approval from the Central Bank. Such approval is discretionary and is decided by the Central Bank on a case-by-case basis. As of the time of writing, there is a proposed amendment, which will grant the Central Bank the power to adjust the above-mentioned foreign exchange quota. It is generally expected that this proposed amendment would be passed in the second half of 2021.
Digital identity and onboarding
Taiwan's Ministry of Interior has developed a mechanism called the Citizen Digital Certificate. With such Certificate, certain types of governmental applications may be submitted and handled online, without the need to go to the government's physical office in person. For example, certain tax filings may be done with such certificate. However, such certificate may not be considered a generally recognised digital identity in Taiwan.
The Minister of the National Development Council, a policy-planning authority of Taiwan, announced in 2018 that, to promote digital transformation in Taiwan and elevate the efficiency of public services, Taiwan Digital ID Cards were planned to be distributed in the second half of 2020. However, because of privacy and cybersecurity concerns, the exact details of the policy are still under discussion.
With regard to digitised onboarding of clients, a customer is generally permitted to open a digital bank account online in accordance with, and subject to, the scrutiny practice published by the Bankers Association of the Republic of China (the Bankers Association).
Also, in 2018, Taiwan's financial regulator, the FSC, promulgated relevant regulations governing the establishment of 'digital-only' banks, which refer to the banks without physical branches. Following the promulgation of these regulations, three applications to set up digital-only banks were filed with the FSC in early 2019, all of which were approved by the FSC on 30 July 2019. According to the FSC press releases, the first digital-only bank received the banking licence from the FSC in December 2020, and the second digital-only bank also received the banking licence from the FSC in February 2021. It is generally anticipated that the establishment of digital-only banks will encourage cross-industry combinations and fintech applications for everyday life by building a fintech ecosphere.
The FSC has been adjusting its position toward supervision of digital-only banks as they are about to start operations, focusing on topics such as real-time monitoring of liquidity risk and other important matters of digital banks, as well as the introduction of suptech (supervisory technology) and regtech (regulatory technology) into the supervision and surveillance of digital banks' business activities. Along with the start of business of the first digital-only bank in Taiwan, it is expected that digitised onboarding will prevail more in Taiwan and the cooperation between players in different industries will be even closer in such a fintech ecosphere.
Digital markets, payment services and funding
i Digital marketplaces
Except for certain rulings and regulations governing security tokens (i.e., the security token offerings (STO) Rules as defined and explained below) and anti-money laundering (as further explained below), no Taiwanese laws or regulations have been specifically promulgated or amended to formally regulate digital assets, cryptoassets or their marketplaces.
The issuing, trading and possessing of security tokens is governed by the STO Rules (as defined below), though the current regulatory regime of Taiwan imposes no restriction or prohibition on owning or possessing cryptoassets without the nature of securities or any other financial products of services.
ii Collective investment scheme
Local funds (securities investment trust funds)
The most common form of collective investment scheme in Taiwan is securities investment trust funds, which may be offered to the general public or privately placed to specified persons. Public offering of a securities investment trust fund needs prior approval or effective registration with the FSC or the institution designated by the FSC. No prior approval is required for a private placement of a securities investment trust fund; however, it can only be placed with eligible investors and within five days of the payment of the subscription price for initial investment offering. A report on the private placement should be filed with the FSC or the institution designated by the FSC. Under current laws and regulations, public offering and private placement of securities investment trust funds may only be conducted by FSC-licensed securities investment trust enterprises (SITEs). Currently, the paid-in capital of a SITE should not be lower than NT$300 million, and certain qualifications exist for the shareholders of a SITE. A fintech company that is not a SITE will not be able to raise funds in the same way as a SITE.
Offshore funds with the nature of a securities investment trust fund may also be publicly offered (subject to FSC prior approval) or privately placed (subject to post-filing with the FSC or its designated institution) to Taiwan investors, subject to certain qualifications and conditions. An offshore fintech company that does not have the nature of a securities investment trust fund will not be able to be offered in Taiwan.
The following two ways of fundraising are generally known as the equity-based crowdfunding platforms in Taiwan. Such ways of crowdfunding are exempted from the prior approval or effective registration normally required under the Securities and Exchange Act (SEA).
The 'Go Incubation Board for Start-up and Acceleration Firms' of the Taipei Exchange
The Taipei Exchange (TPEx), one of the two securities exchanges in Taiwan, established the Go Incubation Board for Start-up and Acceleration Firms (GISA) in 2014 for the purpose of assisting innovative and creative small non-public companies in raising capital. The regulations governing the GISA were amended in December 2018. A company with innovative or creative ideas with potential for development is qualified to apply for GISA registration with TPEx. After TPEx has approved the application, the company will start receiving counselling services from TPEx regarding accounting, internal control, marketing and legal affairs. After the counselling period, there is another TPEx review to examine, among other things, the company's management teams, the role of board of directors, accounting and internal control systems, and the reasonableness and feasibility of the plan for capital raising, and, if the TPEx deems it appropriate, the company may raise capital on the GISA. The amount raised by the company through the GISA may not exceed NT$30 million unless otherwise approved. In addition, an investor's annual maximum amount of investment through the GISA should not exceed NT$150,000, except for angel investors defined by TPEx or wealthy individuals with assets exceeding an amount set by TPEx and having professional knowledge regarding financial products or trading experience.
Equity-based crowdfunding on the platforms of securities firms
A securities firm may also establish a crowdfunding platform and conduct equity crowdfunding business. Currently, a company with paid-in capital of less than NT$50 million may enter into a contract with a qualified securities firm to raise funds through the crowdfunding platform maintained by such securities firm, provided that the total amount of funds raised by such a company through all securities firms' crowdfunding platforms does not exceed NT$30 million in a year. The amount of investment made by an investor on a securities firm's platform may not exceed NT$150,000 in aggregate in a year, except for angel investors as defined in the relevant TPEx regulations, individuals having assets exceeding NT$30 million and professional knowledge regarding financial products or trading experience, and insiders of the company.
iv Peer-to-peer lending
While, to date, there are no laws or regulations specifically regulating or governing peer-to-peer lending, the Bankers Association of the Republic of China (the Bankers Association) has promulgated a Self-Disciplinary Rules of Business Cooperation between Member Banks of Bankers Association and Peer-to-Peer Lending Operators (the P2P Self-Disciplinary Rules), and such P2P Self-Disciplinary Rules have been filed with the FSC for record.
According to the P2P Self-Disciplinary Rules, banks may work together with the peer-to-peer lending operators on the following businesses:
- a bank providing a fund custodian service;
- a bank providing a cash flow service;
- a bank providing credit review and rating services;
- a bank extending a facility to the customer (i.e., the P2B model);
- advertising and marketing activities; and
- a bank providing a credit document custody service.
v Loans trading
The general principle under Taiwan's Civil Code is that any receivable is assignable unless:
- the nature of the receivable does not permit such transfer;
- the parties to the loan have agreed that the receivable shall not be transferred; or
- the receivable, in nature, is not legally attachable.
Receivables under loans, subject to (b) above, are generally transferable; however, a bank is subject to stricter rules that, in general, loans that continue to perform cannot be transferred by a bank except for limited exceptions (such as for the purpose of securitisation). For this reason, Taiwan does not currently have an active secondary loan market.
vi Payment services
Traditionally, payments by wire transfer can only be made through a licensed bank. Payments via cheques and credit cards are also run through banks. Non-banks engaging in credit card-related business and issuance of electronic stored-value cards should also obtain approval from the FSC. In 2015, the Act Governing Electronic Payment Institutions (the E-Payment Act) was enacted. This E-Payment Act regulates the activities of an electronic payment institution, acting in the capacity of an intermediary between payers and recipients to engage. In December 2020, the Legislative Yuan of Taiwan passed an amendment to the E-Payment Act, scheduled to take effect in June 2021. The amendment merges the E-Payment Act and the Act Governing Issuance of Electronic Stored Value Cards (E-Card Act) to expand the current businesses of electronic payment institutions and electronic stored value cards institutions, and build up an integrated e-payment ecosphere. The main amendments in the newly amended E-Payment Act include, among others:
- consolidating the legal regimes of different types of electronic payment methods;
- expanding the scope of businesses of electronic payment institutions, such as small amount cross-border remittance services or transmission of receipt or payment information among contracted merchants, which used to be regulated in the E-Card Act;
- permitting the cash flow related service among institutions so as to meet the payment requisite of fund transmission and payment channel sharing; and
- creating a friendly regulatory environment for industry, enhancing the competitiveness of the industry and retaining the supervision flexibility to the regulator.
Cryptocurrencies, initial coin offerings (ICO) and security tokens
There were no legal or regulatory rules or guidelines in relation to blockchain technology in Taiwan. However, with the rise of certain applications of blockchain technology such as virtual currencies or cryptocurrencies, Taiwan's regulators have issued several press releases to announce their positions and attitude towards such developments, as well as to educate and warn the general public in Taiwan. Further, the FSC promulgated certain regulations on cryptocurrencies with the nature of securities, which will be described in detail below.
On 30 December 2013, both the Central Bank and the FSC first expressed the government's position toward Bitcoin by issuing a joint press release (the 2013 Release). According to the 2013 Release, the two authorities held that Bitcoin should not be considered a currency, but a highly speculative digital virtual commodity. In another FSC press release in 2014 (the 2014 Release), the FSC ordered that local banks must not accept Bitcoin or provide any other services related to Bitcoin (such as exchange Bitcoin for fiat currency). Such government positions were reiterated by the FSC in an FSC press release on 19 December 2017 (the 2017 Release).
Given the above, in light of the authorities' attitude, Bitcoin is not considered to be legal tender, currency or a generally accepted medium of exchange under the current regulatory regime in Taiwan; instead, Bitcoin is deemed a digital virtual commodity. The government's attitude stated in the abovementioned press releases only cover Bitcoin, instead of any other types of virtual currencies or cryptocurrencies (except for initial coin offerings (ICOs) as further explained below). However, we tend to think that any other virtual currencies or cryptocurrencies, if having the same nature and characteristics as Bitcoin, should also be considered as digital virtual commodities.
i ICOs and token offerings; STOs
In response to the rising amount of ICOs and other investment activities regarding virtual currencies or cryptocurrencies, the FSC also expressed the following view on ICOs through the 2017 Release as mentioned above:
- An ICO refers to the issue and sale of virtual commodities (such as digital interests, digital assets, or digital virtual currencies) to investors. The classification of an ICO should be determined on a case-by-case basis. For example, if an ICO involves offer and issue of securities, it should be subject to Taiwan's SEA. The issue of whether tokens in an ICO would be deemed securities under the SEA would depend on the facts of each individual case.
- If any misrepresentations with respect to technologies or their outcomes or promises of unreasonably high returns are used by the issuer of virtual currencies or an ICO to attract investors, the issuer would be deemed as committing fraud or illegal fundraising.
Given the above, in an ICO (or other types of token offering, such as private token pre-sale before the ICO stage), the core issue in this regard is whether an ICO would be considered as issuing securities under Taiwan's securities regulations. Under current Taiwan law, the offer and sale of securities in Taiwan, whether through public offering or private placement, are regulated activities and shall be governed in accordance with the SEA, its related regulations as well as relevant rulings issued from time to time by the FSC.
On 3 July 2019, the FSC, by issuing a ruling, officially designated cryptocurrencies with the nature of securities (i.e., security tokens) under the SEA (the 2019 Ruling). According to the 2019 Ruling, security tokens refer to those that:
- utilise cryptography, distributed ledger technology or other similar technologies to represent their value that can be stored, exchanged or transferred through digital mechanism;
- are transferable; and
- encompass the following attributes of an investment:
- funding provided by investors;
- funding provided for a common enterprise or project;
- investors expecting to receive profits; and
- profits generated primarily on the efforts of the issuer or third parties.
In addition to the 2019 Ruling, the FSC issued a press release on 27 June 2019 to illustrate the key points of the FSC's policy on STOs. Since then, the FSC and the TPEx have set out the regulation governing STOs (the STO Rules), and the STO Rules were finalised in January 2020. Specifically, the FSC differentiates the regulation of STOs with the threshold of NT$30 million. For an STO of NT$30 million or less, the STO may be conducted in compliance with the STO Rules; an STO above NT$30 million must first apply to be tested in the 'financial regulatory sandbox' pursuant to the Sandbox Act and, in case the experiment has a positive outcome, should be conducted pursuant to the SEA. Please see the summary below of certain other major provisions of the STO Rules (i.e., for STOs of NT$30 million or less).
Regulations on issuance (primary market)
Qualifications of the issuer
The issuer must be a company limited by shares incorporated under the laws of Taiwan and not a company listed on the Taiwan Stock Exchange or TPEx or traded on the Emerging Stock Market. This indicates that a foreign entity may not act as an issuer of an STO programme.
Types of security tokens that can be issued
The issuer can only issue profit-sharing or debt tokens without shareholder's rights, meaning that shares – which is a type of securities under SEA, with regular shareholder's rights of an issuer, cannot be issued in the form of security token while bonds can be issued as debt tokens.
Eligible investors and amount limits
Only 'professional investors' are eligible for STOs; where the professional investor is a natural person, the maximum subscription amount is NT$300,000 per STO.
Issuers must conduct STOs on a single platform, and the platform operator has the obligation to ensure that the issuer meets the relevant qualifications and that the prospectus be well prepared. Where the platform operator itself is an STO issuer, such issuer should not launch an STO without a prior review by TPEx.
Regulations on trading (secondary market)
Trading mechanism of security tokens
The platform operator should obtain a securities dealer licence and handle the trading by way of price negotiation. The platform operator should be the counterparty to every transaction and should offer a reasonable reference quotation based on the market conditions. In addition, each security token under an STO programme may be traded only on a single platform.
Maximum transaction amount
Where the professional investor is a natural person, the maximum amount of holding under an STO programme is NT$300,000. In addition, the maximum daily transaction limit for each STO is 50 per cent of the total issuance amount under such STO programme.
STO platform operator
Qualifications of the platform operator
The platform operator should obtain a securities dealer licence, have minimum paid-in capital of NT$100 million and provide an operation bond in the amount of NT$10 million.
Total offering amount capacity
The total offering amount of all STOs on a single platform should not exceed NT$100 million. A platform can accept to process a second STO only one year after the security tokens of the first STO have been traded on the platform.
Transfer and record keeping
The platform operator should enter into an agreement with the Taiwan Depository and Clearing Corporation (TDCC) and transmit the trading information such as balance changes and a balance statement to the TDCC to be recorded on a daily basis. The TDCC should provide STO balance inquiry service to investors.
Subscription and trading
Subscription and trading of security tokens should be conducted on a real-name basis and the transactions must be conducted in New Taiwan Dollars (NT$) under the same name as that featuring on the bank account.
ii Anti-money laundering
It was reported that, according to Mr Koo (the chairman of the FSC when the statement was made), the FSC will regulate the anti-money laundering activities of cryptocurrency trading platforms or exchanges under the Taiwan Anti-money Laundering Act after the Executive Yuan (EY) officially authorises the FSC as the regulator of anti-money laundering activities of cryptocurrency trading platforms or exchanges. As at the time of writing, the EY has not granted such authorisation to the FSC so far. In addition, it is unclear at this stage what requirements will be imposed by the FSC on anti-money laundering activities of cryptocurrency trading platforms or exchanges. The FSC has authorised the Bankers Association to publish the 'Practice Reference for Examination of Establishing Business Relationship between Banks and Cryptocurrency Trading Platforms' to regulate the banks' business relationship with cryptocurrency trading platforms or exchanges. This practice reference has been serving as the industry's compliance guidelines regarding anti-money laundering prior to the EY's authorisation to the FSC.
Other new business models
The legal implications of any new business model should be examined on a case-by-case basis. Unless otherwise provided by law, the legal effect of an action should not be different simply because a new technology is applied. For example, while no specific rules exist that are applicable to the use of a new technology, such as artificial intelligence or automated technology, when offering financial services (except for the 'automated digital advisory' as discussed above), a financial institution (such as a bank) may still be subject to relevant outsourcing regulations if the use of a technology could be considered banks outsourcing their operations.
For example, consider self-executing contracts (i.e., smart contracts based on blockchain technology). As a general rule, in Taiwan contracts can be formed by a meeting of the minds, and they can be expressed and proven by way of electronic records, including smart contracts, unless otherwise provided by law. An example of an instance in which a smart contract may not be enforceable is the transfer of real estate, as this requires registration with the regulator and thus may not be completely implemented solely with a smart contract.
Intellectual property and data protection
The issue here would be whether fintech business models and related software can be protected by intellectual property rights such as copyright or patent.
Under Taiwan's Copyright Act, there are no registration or filing requirements for a copyright to be protected by law. However, there are certain features that qualify for a copyright, such as originality and expression. Therefore, while there is a type of copyright called 'computer program copyright' under Taiwan's Copyright Act, whether a work is copyrightable would still depend on whether the subject work has the required components (such as the features described above), especially the feature 'expression' (instead of simply an 'abstract idea'). As to a new copyright developed by an employee of a company during the course of employment, where a work is completed by an employee within the scope of employment, the employee is the author of the work while the economic rights to such work will be enjoyed by the employer unless otherwise agreed by the parties. As to a new copyright developed by a contractor, the contractor who actually makes the work is the author of the work unless otherwise agreed by the parties; the enjoyment of the economic rights arising from the work should be agreed by the parties, or such rights should be enjoyed by the contractor in the absence of such agreement. However, the commissioning party may use the work.
As to patent, an inventor may file an application with Taiwan's Intellectual Property Office, and the patent right will be obtained once the application is approved. According to the Patent Act of Taiwan, the subject of a patent right is 'invention' and an invention means the creation of technical ideas, utilising the laws of nature. As a general rule, business methods are regarded as using social or business rules rather than laws of nature, and therefore may not be the subject of a patent right. As for a fintech-related software invention, if it coordinates the software and hardware to process the information, and there is a technical effect in its operation, it might become patentable. For instance, a 'method of conducting foreign exchange transaction' would be deemed as a business method and thus not patentable; however, a 'method of using financial information system to process foreign exchange transactions' may be patentable. As to a new patent developed by an employee of a company during the course of employment, the right of an invention made by an employee during the course of performing his or her duties under employment will be vested in his or her employer and the employer should pay the employee reasonable remuneration unless otherwise agreed by the parties. As to a new invention developed by a contractor, the agreement between the parties should prevail, or such rights should be vested in the inventor or developer in the absence of such agreement. However, if there is a fund provider, the funder may use such invention.
iii Data protection
In Taiwan, personal information is protected by Taiwan's PDPA; the collection, processing and use of any personal data are generally subject to notice and consent requirements under the PDPA. Pursuant to the PDPA, personal data is defined broadly as: the name, date of birth, ID card number, passport number, characteristics, fingerprints, marital status, family, education, occupation, medical record, medical treatment, genetic information, sexual life, health examination, criminal record, contact information, financial conditions, social activities and other information that may directly or indirectly identify an individual.
Under the PDPA, unless otherwise specified under law, a company is generally required to give notice to (notice requirement) and obtain consent from (consent requirement) an individual before collecting, processing or using any of said individual's personal information, subject to certain exemptions. To satisfy the notice requirement, certain matters must be communicated to the individual, such as the purposes for which his or her data is collected, the type of the personal data and the term, area and persons authorised to use the data.
Given the above, if a fintech company wishes to collect, process or use any personal data, it will be subject to the obligations under the PDPA as advised above.
Year in review
i Open banking
The trend of 'open banking' has increased its influence over banks in Taiwan. The FSC encourages banks to voluntarily open up their application programming interfaces (APIs) for programmatic access by third-party financial service providers (TSPs). The ultimate goal is to provide TSPs with open access to consumer banking, transaction and other financial data from banks and non-bank financial institutions through the use of APIs. The FSC, as reported, adopts a three-phase approach for open banking:
- Phase I: product and service data (open data). Phase I was launched in October 2019. For this phase, many banks have offered access to information on banking products and services to TSPs, such as deposit interest rates, foreign exchange rate information, locations of branches and loan product comparison. No personal data provided by customers is available at this stage.
- Phase II: customer data. Phase II involves access to customer data. In Phase II, information on a customer's bank accounts and applications for bank products will be made available to TSPs. According to the FSC press release, on 31 December 2020, two TSPs have been approved by the FSC to collaborate with certain banks under Phase II. The collaboration will allow customers who agree to share their account and transaction information at such banks with the TSPs to check their account and transaction information on the APIs of such TSPs. The promotion of Phase II is expected to integrate the services of banks and TSPs to provide customers with more innovative and convenient financial services.
- Phase III: transaction data. Phase III involves the processing of transactions. In Phase III, the open API functions will include bill payment, fund transfer, credit card rewards redemption, loan repayment, etc. It is generally perceived that the complexity and risk of releasing transaction data of customers involved in this phase will increase, and therefore the technology to support, monitor and secure the open API access will be more complex and critical. For the same reason, the timeline to launch Phase III is still under discussion.
The FSC further emphasises that banks must (1) collaborate with TSPs with sound management and security controls; (2) establish internal policies and procedures; and (3) apply risk-based approach to use their own authentication methods for bank customers. To ensure consumer protection, the Bankers Association has been discussing the internal self-regulatory rules of each phase for banks' partnering with TSPs, including security, authentication and authorisation.
ii Central Bank Digital Currency
According to public information released by the Central Bank, it has formed a special task force for the study of Central Bank Digital Currency (CBDC), which is generally considered to be digital NT$. The CBDC task force has already completed an exploratory project on the feasibility of issuing a 'wholesale CBDC' (i.e., the CBDC used by financial institutions), with the preliminary observation that a platform built on the distributed ledge technology (DLT) does not necessarily perform better than a platform with a centralised system. The Central Bank announced that it started with the next experiment project which focuses on 'retail CBDC' (i.e., CBDC for use by the general public) in September 2020, and is expected to complete the project in two years.
As the issuance of CBDC, the digital NT$, will inevitably affect people's payment habits (e.g., as opposed to payment with cash, credit cards or other payment services rendered by payment service companies), it is generally considered that the issuance of CBDC will have a material impact on the current banking industry as well as e-payment industry players, so it is suggested that the industry participants closely follow the CBDC development as well as the results of the Central Bank's relevant projects.
Outlook and conclusions
Recently, in light of the prosperous development of the DLT and blockchain technologies, the trend of decentralised finance (DeFi) has also spurred on the market in Taiwan. In general, DeFi projects aim to adopt the DLT and blockchain technologies to traditional financial activities so as to stimulate the financial industry with new capabilities. However, while the discussion and application of DeFi continues to grow in the market, there are currently no specific laws or regulations promulgated by the Taiwan government to regulate or provide a legal basis for the development of DeFi.
1 Abe T S Sung is a partner and Eddie Hsiung is an associate partner at Lee and Li, Attorneys-at-Law.