After a year that saw Taiwan’s parliament deeply divided on issues including pension reform, labor rights and transitional justice, 2017 ended on a rare note of unity in Taiwan’s parliament. On Dec. 29, the Legislative Yuan voted to pass the final reading of the Financial Technology Innovation Experimentation Act, with the bill commanding cross-party support.

The Act offers the most innovative companies in the fintech space the chance to experiment in a regulatory "sandbox" for up to three years without falling foul of existing laws or regulations. Since discussions on its composition began, it has been viewed as a key indicator of Taiwan's willingness to embrace a more flexible regulatory approach, and has been championed as a means of both attracting international talent and providing graduates with the inspiration and opportunity to remain in Taiwan.

The News Lens sat down with Democratic Progressive Party (DPP) legislator Karen Yu (余宛如), who as a member of the Finance Committee was in large part responsible for initiating and supporting the bill, to talk about conflicts over credit for the bill, its origins and wider efforts to promote Taiwan’s innovation economy.

The News Lens: There seems to be some debate over credit for the fintech bill, with KMT legislator Jason Hsu (許毓仁) claiming credit for authoring it while rallying support among Taiwan’s blockchain and cryptocurrency community. Can we clear up the background?

Karen Yu: I’m a financial committee member, and [KMT legislator] Jason Hsu (許毓仁) is not. So actually, he cannot speak too much. He is a member of the defense and foreign affairs committees. The first time we discussed this bill with other cross-party members in the financial committee, Jason was rejected by his party’s senior members.

TNL: In what way?

KY: At the time, Lai Shi-bao (賴士葆), the senior member of his party was a co-convener of the committee, would not allow Jason to speak out. I was a new member and was surprised that a co-convener had the right to do that. [Editors note: There is no mechanism through which a legislator can be prevented from sharing their views within Legislative Yuan committees should they so wish, and legislators are free to draft and propose bills even when they are not members of the relevant committee.]

That’s why I took on a lot of responsibility to push this bill forward. You could say I am the only member in the committee [of about 11 legislators] from the DPP who is really supporting fintech. [There are currently seven standing committees in the Legislative Yuan on internal administration, social welfare and environmental hygiene, judiciary and organic laws and statutes, transport, education and culture, finance, economics and foreign and defense affairs.]

Of course, you can share opinions in other committees but there is no guarantee you will have any influence. Jason Hsu has been a really good cheerleader for the bill. The main discussions or debates happen within the committee.

TNL: How did we get to the point at which the fintech bill commanded cross-party support?

KY: In the first session of 2016, it was very difficult to push the Financial Supervisory Commission (FSC) to move forward. At that time, the banks and finance institutions rejected the idea of opening the door to fintech. I asked the FSC chair many times to address the idea, and in the second session I asked my assistant to propose the bill – thinking if [the FSC] won’t change I will push to move forward. But then the bill was almost frozen because in Taiwan if you propose a bill or regulation, you have to wait for a response from the Executive Yuan [Taiwan’s cabinet]. Otherwise you don’t have any conversation with the government.

During the second session, the FSC kept stalling. At that time, the Lord Mayor of London [Jeffrey Mountevans] visited Taiwan and met with President Tsai Ing-wen. [Mountevans visited in July 2016 on a trip to promote London as Taiwan’s “regional partner of choice for financial and professional services”]. After that event, President Tsai announced that Taiwan should develop fintech.


Credit: Office of Legislator Karen Yu

Karen Yu quizzes FSC Chairman Koo over Taiwan's plans to become a fintech hub.

TNL: So the London model had a strong influence?

KY: Yes, that story [about London’s approach] had a strong influence. I used that announcement to push the FSC chair for feedback. Other members of the DPP – we conducted the committee because we have more people than the other parties – they didn’t have any idea about fintech.

TNL: How did we get from announcement to the drafting of the initial bill, and who drafted it?

KY: In the same session, I proposed the bill and William Tseng (曾銘宗) was the first person from the KMT to propose the bill.

TNL: Did you work together or separately?

KY: We worked separately.

TNL: And the idea was to create a bill for first reading?

I can’t remember that clearly but it smoothly passed the first reading and then was frozen for a while.

TNL: It’s been suggested that there was some opposition from the FSC and financial institutions between the second and third readings to introduce stricter anti-money laundering (AML) controls?

KY: Actually, it was first to second reading. We had a long discussion within the committee and finally the co-convener invited all the members to share their opinions and every member agreed to pass the final bill. So when the bill went to second reading, the Legislative Yuan President [Su Chia-chyuan 蘇嘉全] has the right to call the meeting again to make sure everyone is happy. But before that happened, DPP caucus whip Ker Chien-ming (柯建銘), who has been a senior technology legislator for 40 years, said he is worried about money laundering. Actually, it’s not a problem because blockchain technology can help trace [money-laundering].

According to the bill, we are authorizing the FSC to open the door to everyone who wants to apply innovative fintech or innovative business models. It’s not the detail - that’s totally different. I’m not worried about AML as you can put that in the detail, but Ker was very worried about that.

TNL: What is the source of that fear? Does it stem from Taiwan’s inclusion and then removal from an AML watchlist and the US$180,000 fine for Mega International Commercial Bank of Taiwan for violating New York’s anti-money laundering laws in 2016?

KY: Yes. This year the Asia-Pacific Group on Money Laundering would like to audit Taiwan again. So Ker is worried that if we don’t pass [the bill], it will affect the whole financial industry. We agreed to put the extra AML clauses in the bill, because actually there’s no effect [because the FSC will draft the rules]. Ker proposed that to LY president Su after the second reading and everyone agreed.

Another element was the review committee to determine whose application can pass [for entrance into the sandbox]. Originally, I was worried that if the whole process was controlled by the FSC, there would be no diversity. In the original version of the bill, we proposed that industry or academic experts should form over half the committee, but Ker said that in London, the committee is 100 percent controlled by [the UK] Financial Conduct Authority. I checked and the reason is because applications involve business secrets, so it’s better if there are not so many people from outside.

TNL: There’s a privacy concern…

KY: Yes, I share that concern with start-ups, as they are so small. Of course, larger institutions have that concern as well, but start-ups don’t have the ability to fight back if their secrets are revealed. So, I agreed to put that criteria in the final version. Ker also said financial innovation involves the public interest and therefore it’s easier to have political responsibility; and better to have less than half from the industry-expert side.

TNL: The outline for applying to the sandbox seems quite stringent and there will likely be a lot of compliance work necessary. Will this, along with the need to assure the review committee, restrict qualification to established or international companies that have a certain scale?

KY: When we discussed the bill, we were trying to lower the criteria for startups. I don’t care what size the business is. If you have innovative business models or tech, the sandbox should welcome you. Of course, there are some criteria to applying – at least it has to be responsible innovation that includes data and privacy protections and AML measures. There are no applicants yet so it remains to be seen if these criteria are really obstacles.

TNL: How likely is it we see third-party payment providers enter the sandbox?

KY: If you are not a bank and you do something that only banks are allowed to do, you would be fined. In the sandbox, [the threat of that fine is removed]. So, if you are not a bank and you do something that only banks can do, it’s allowed. That means if you are not a third-party payment company and you want to perform that business, you can apply for the sandbox. There is no capital requirement.

TNL: The focus around the bill seems to have been around cryptocurrency and blockchain…

KY: Really? It’s not only about digital currency. There is diversity. Payments and other fintech-related new business.

TNL: My impression from the FSC and central bank was that they are quite conservative and have concerns over currency exchange, would you agree?

KY: The FSC is just looking. They don’t want to be in charge of digital currency and ICOs. But the real problem is if the FSC does not show a positive attitude to collaborating with the banks.

TNL: Do you think the bill does enough, and are the FSC doing, enough, to show that support?

KY: In the beginning they were reluctant but the new FSC Chair [Wellington Koo 顧立雄] is a lawyer and is quite open-minded. The bill is complicated and during the discussion he helped a lot to revise the drafts quickly. But the bill is not enough. It just authorizes the FSC as being in charge of the regulations.

Chairman Koo wants to have a fintech innovation park for startups in Nanhai Rd that will open in the middle of this year. The UK experience says you should have a boost to kickstart things, that’s why they are launching the park. The idea is that if you are really innovative the FSC will help introduce you to investment, including banks.

TNL: What are the most important legislative initiatives coming up that might help further galvanize the innovation economy in Taiwan?

KY: Last session, we passed three bills that aim to inspire innovation: The Act for Recruitment and Employment of Foreign Talent, the Statute of Industry Innovation amendments to encourage angel investors, and the regulatory sandbox. It’s a sign of our resolution to turn Taiwan into an innovative country.

The next important bill will be Company Law — for example looser rules on convertible debt to help startups attract investment — that will be an amendment. The second one is the Law for SME Innovation and Development. Within that law, they are trying to introduce more regulatory sandboxes, not just for fintech. In the next session, I will also put more attention on digital currency and ICO issues, but we still have to convince a lot of people who have a bad impression. There is not much time, so I’ll do this soon.