Fintech in Taiwan 2024

FINTECH 2024

TAIWAN

Abe T S Sung, Eddie Hsiung

(Lee and Li Attorneys at Law)

FINTECH LANDSCAPE AND INITIATIVES

General innovation climate

What is the general state of fintech innovation in your jurisdiction?

Taiwan’s law for the fintech regulatory sandbox, the FinTech Development and Innovation and Experiment Act (the Sandbox Act) was promulgated on 31 January 2018 and took effect on 30 April 2018. As at June 2022, nine applications have been approved by the Financial Supervisory Commission (FSC) to enter into the sandbox, as summarized:

to facilitate digital banking business (e.g, online credit (credit card, credit facility)) by means of a mobile phone identity verification system;
the outbound remittance by foreign workers through local convenience stores (two cases);
to use blockchain technology for the transmission of fund transfer information between financial institutions;
to enable customers to purchase travel insurance through the website of a travel agency by means of application programming interface connections;
to provide the ‘fund exchange’ service by means of blockchain technology;
to shorten the fund transmission gap by means of the ‘T+0 contract mechanism’;
to provide a group buying platform for investing in bonds with blockchain as the underlying technology; and
to allow investors to buy US exchange-traded funds using a US dollar cost-averaging strategy based on the advice provided by robo-advisers.

According to relevant local news reports and the FSC website, some of the applications that entered the regulatory sandbox are now existing practices, while some may be implemented legally in the near future. Generally speaking, applicants of experiments under the Sandbox Act may apply for the new license or approval for their business once the existing laws and regulations involved in the experiments have been amended by the FSC or the Legislative Yuan.

In addition to the sandbox mechanism described above, in 2018, the Taiwan government also supported fintech developments by, for example, establishing the FinTechSpace, which is a physical location situated in the city of Taipei with an aim to provide relevant assistance to fintech start-ups, such as acting as an intermediary between fintech start-ups and financial services entities (with respect to potential cooperation between the parties), a regulatory clinic (namely, free preliminary advice provided by government officials regarding regulations), etc.

Government and regulatory support

Do government bodies or regulators provide any support specific to financial innovation? If so, what are the key benefits of such support?

The regulatory sandbox offers a platform to test new applications of fintech technologies. According to the Sandbox Act, an applicant (who can be an entity or individual) needs to obtain an approval from the FSC before entering the sandbox and beginning the experiment. During the experiment period, the experimental activities may enjoy exemptions from certain laws and regulations (such as FSC licensing requirements and certain legal liability exemptions). After completion of the approved experiments, the FSC will analyze the results of them. If the result is positive, the FSC may review the existing financial laws and regulations and explore the possibility of amending the existing rules that pose obstacles to the experimented financial innovation if put in the real world. However, depending on the review result of the FSC, the sandbox entity or individual might still be required to apply for a relevant license or approval from the FSC to formally conduct the activities as previously tested in the sandbox.

FINANCIAL REGULATION

Regulatory bodies

Which bodies regulate the provision of fintech products and services?

In Taiwan, the Financial Supervisory Commission (FSC) is the government body regulating all financial products and services. There are four bureaux established under the FSC:

the Banking Bureau (BB);
the Securities and Futures Bureau (SFB);
the Insurance Bureau (IB); and
the Financial Examination Bureau (EB) (collectively the Bureaux).

Each of the BB, SFB and IB is separately responsible for regulating the banking, securities and insurance industries. The EB is in charge of financial inspection and audits of financial institutions regulated by the FSC. Currently, none of the four bureaux has been specifically designated to regulate fintech products and services. Therefore, it should depend on the nature of such products and services to determine which bureau would be the body regulating the relevant fintech products or services.

As to the mechanism of the regulatory sandbox, the FSC is the competent authority; nonetheless, if the tested fintech product and service relates to the regulatory regime of other competent authorities (such as the Central Bank), the opinion of these relevant authorities will also be consulted by the FSC.

Regulated activities

Which activities trigger a licensing requirement in your jurisdiction?

In Taiwan, conducting finance-related activities generally requires a license from the FSC. These activities include the following, without limitation.

Securities-related activities: securities underwriting, securities brokerage, securities dealing (i.e, proprietary trading), securities investment trust (i.e, asset management) and securities investment consulting.
General consulting business, such as acting as financial advisers or agents to arrange investments or bring about merger or acquisition deals, does not require any license. In addition, acting as principal in an investment deal does not require any license(except if a foreign investor should need a foreign investment approval and investment in regulated industries needs special approvals).
Bank-related activities:
lending: lending activities do not fall within the business to be exclusively conducted by a local licensed bank. However, as no financing company may be registered in Taiwan, it is currently not possible for an entity to register as a financing company to carry on lending activities in Taiwan;
factoring and invoice, discounting and secondary market loan trading;
deposit-taking;
foreign exchange trading;
remittance; and
electronic payment, credit cards and electronic stored-value cards.

Consumer lending

Is consumer lending regulated in your jurisdiction?

A local licensed bank may carry on consumer lending activities. Although lending activities do not fall within the business to be exclusively conducted by a local licensed bank, carrying out lending activities as one of a company’s registered business activities is still not permitted in Taiwan.

Secondary market loan trading

Are there restrictions on trading loans in the secondary market in your jurisdiction?

The general principle under Taiwan’s Civil Code is that any receivable is assignable unless:

the nature of the receivable does not permit this transfer;
the parties to the loan have agreed that the receivable shall not be transferred; or
the receivable, in nature, is not legally attachable.

The receivables under a loan, subject to (2), are generally transferable. However, a bank is subject to stricter rules that, generally, loans that remain performing cannot be transferred by a bank, with some limited exceptions (such as for the purpose of securitization). For this reason, Taiwan does not currently have an active secondary loan market.

Collective investment schemes

Describe the regulatory regime for collective investment schemes and whether fintech companies providing alternative finance products or services would fall within its scope.

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 to eligible investors and within five days after the payment of the subscription price for initial investment offering, a report on the private placement shall be filed with the FSC or the institution designated by the FSC. Generally, the total number of qualified non-institutional investors under a private placement shall not exceed 99. 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 there exist certain qualifications for the shareholders of a SITE. A fintech company, which is not a SITE, will not be able to raise funds as a SITE does.

Offshore funds

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, which does not have the nature of a securities investment trust fund, will not be allowed to be offered in Taiwan.

Alternative investment funds

Are managers of alternative investment funds regulated?

Currently, only securities investment funds, real property trust funds and futures trust funds (which focus on investment in futures and derivatives) are permitted in Taiwan (except that SITEs and securities firms are now permitted to set up a subsidiary to act as the general partner of a private equity fund under the structure of limited partnership). These funds may only be offered and managed by FSC-licensed entities, such as SITEs, banks or futures trust enterprises. A fintech company that is not a SITE, a bank or a futures trust enterprise, will not be allowed to manage these funds in Taiwan.

Peer-to-peer and marketplace lending

Describe any specific regulation of peer-to-peer or marketplace lending in your jurisdiction.

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), the self-disciplinary organization of the banking industry, has promulgated the 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 the record.

According to the P2P Self-Disciplinary Rules, banks may work together with peer-to-peer lending operators on the following matters:

providing fund custodian services;
providing cash-flow services;
providing credit review and rating services;
extending facility by a bank to the customer (i.e, the people-to-business model);
advertising and marketing activities; and
providing credit document custody services.

Crowdfunding

Describe any specific regulation of crowdfunding in your jurisdiction.

Equity-based crowdfunding

The following two ways of fundraising are generally known as equity-based crowdfunding platforms in Taiwan. These ways of crowd funding are exempted from the prior approval or effective registration normally required under the Securities and Exchange Act (SEA).

The Go Incubation Board for Startup 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 Startup and Acceleration Firms (GISA) in 2014 for the purpose of assisting innovative and creative small non-public companies in capital raising.

A company with innovative or creative ideas with the potential for development is qualified to apply for GISA registration with the TPEx. After the TPEx approves the application, the company will first start receiving counselling services from the 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 the board of directors, accounting and internal control systems, and the reasonableness and feasibility of the plan for raising capital, and if the TPEx deems 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 invest ment through the GISA should not exceed NT$150,000, except for in the case of angel investors defined by the TPEx or wealthy individuals with assets exceeding an amount set by the TPEx and with 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 an 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 the securities firm, provided that the total amount of funds raised by the company through all securities firms’ crowdfunding platforms in a year may not exceed NT$30 million. 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 in the case of:

a natural person who provides proof of financial resources of at least NT$ 30 million and has sufficient expertise or experience in financial instruments;
the directors, supervisors and shareholders holding more than 10 percent of the shares of the company; and
angel investors as defined in the relevant regulations.

Non-equity-based crowdfunding

In 2013, the TPEx established the Gofunding Zone on its official website. This mechanism allows the non-equity-based crowdfunding platform operators, once approved by the TPEx, to post information regarding their proposals and projects on the Gofunding Zone. However, in May 2018, the TPEx announced that owing to the significant developments in the crowdfunding business, the phased task of the TPEx to support this business had been completed, and, thus, it decided to close the Gofunding Zone and annulled relevant rules.

Invoice trading

Describe any specific regulation of invoice trading in your jurisdiction.

The general principle under Taiwan’s Civil Code is that any receivable is assignable unless:

the nature of the receivable does not permit this transfer;
the parties to the loan have agreed that the receivable shall not be transferred; or
the receivable, in nature, is not legally attachable.

In general, no company may carry out the activities of receivable transfer for business. Purchase of accounts receivable may only be conducted by a licensed bank.

Payment services

Are payment services regulated in your jurisdiction?

Payments using the services of a licensed bank

Yes. Traditionally payments by wire transfer can only be made through a licensed bank. Payments via cheques and credit cards are also run through banks.

E-payment institutions

The Electronic Payment Institutions Act (the E-payment Act), which governs the online payment sector in Taiwan, was enacted in 2015. In December 2020, Taiwan’s parliament, the Legislative Yuan, made an amendment to the E-payment Act, which took effect on 1 July 2021. Under the amended E-payment Act, the scope of business of a new e-payment institution will include core businesses and ancillary and derivative businesses.

For the core businesses, in addition to the existing businesses of:

collecting and making payments for real transactions as an agent; and
accepting deposits of funds as stored value funds.

The new business small amount domestic and cross-border remittance services and foreign exchange services relating to the core businesses will also be opened to e-payment institutions from the effective date of the amendment.

The ancillary and derivative businesses are all new under the E-payment Act, which include:

assisting the contracted merchants with integration and transmission of acquiring and payment information;
sharing terminal equipment at the contracted merchants;
assisting the information exchange between the users and between the users and the contracted merchants;
providing an electronic uniform invoice system and its value-added services;
taking custody of paid price of vouchers or tickets of goods or services, and assisting in the issuance, sales, validation and related services for vouchers or tickets;
providing services for integration of bonus points and offsetting or settling payments for real transactions with bonus points;
providing value-storing blocks in electronically stored value cards or application programs for use by others; and
providing any planning, instalment, maintenance or consultancy services for the information system and facilities in relation to the above seven ancillary and derivative businesses of e-payment

‘Small amount remittances by foreign workers’ allowed for non-payment institutions

The amended E-payment Act would also permit qualified non-e-payment institutions to apply to become cross-border remittance service providers exclusively for foreign workers in Taiwan. Detailed enforcement rules and regulations have also been promulgated by the FSC and took effect on 1 July 2021.

Open banking

Are there any laws or regulations introduced to promote competition that require financial institutions to make customer or product data available to third parties?

While the FSC has the general power to request the provision of customer or product data by financial institutions to the FSC, in practice, the FSC’s relevant regulations, directions or guidelines also require that financial institutions provide relevant customer and product

data (such as data relating to credit extensions, credit cards and derivatives) to the Joint Credit Information Center (JCIC) for banks’ use of credit check in terms of credit extension.

In addition, in response to the advocacy of ‘open banking’ from some industry experts and market players, the FSC has demanded the Bankers Association set out relevant self-regulatory rules to implement the concept of open banking in Taiwan. The FSC did not wish to set out mandatory disclosure rules for banks, and instead, asked the self-regulatory organization (i.e, the Bankers Association) and the Financial Information Service Co to set out relevant rules and information security standards for banks to follow.

The FSC, as reported, adopts a three-phase approach to open banking. Phase I of ‘open banking’ was launched in late 2019, to allow public product information to be searchable by third parties (namely, third-party service providers (TSPs)). Phase II involves access to customer data. According to relevant FSC press releases, several TSPs have been approved by the FSC to collaborate with certain banks under Phase II. Phase III will involve the processing of transactions. It is generally perceived that the complexity and risk of releasing transaction data of customers involved in this Phase would increase, and therefore the technology to support, monitor and secure the open application programming interface access would be more complex and critical. For the same reason, the timeline to launch Phase III is still under discussion.

Robo-advice

Describe any specific regulation of robo-advisers or other companies that provide retail customers with automated access to investment products in your jurisdiction.

In June 2017, the Securities Investment Trust and Consulting Association of Taiwan, the self-disciplinary organization of the asset management industry, issued the Operating Rules for Securities Investment Consulting Enterprises Using Automated Tools to Provide Consulting Service (Robo-Advisor) (the Robo-Advisor Rules), which was approved by the FSC. Pursuant to the Robo-Advisor Rules, securities investment consulting enterprises may provide online securities investment consulting services by using automated tools through an algorithm (Robo-Advisor Services) and they must comply with certain rules, which include, among others, the following:

periodical review of the algorithm;
relevant know-your-customer procedures should be conducted before the provision of advice;
a special committee should be established to supervise the adequacy of the Robo-Advisor Services; and
customers should be informed of precautions before using Robo-Advisor Services.

With respect to the requirements of the Robo-Advisor’s rebalancing transactions, the FSC, on 18 November 2021, further relaxed the restrictions where the investment portfolios agreed between the Robo-Advisor and its clients that securities investment trust funds or offshore funds (approved by or registered with the FSC) and the rebalancing transactions can be executed on the following conditions:

it adheres to the funds’ list agreed with the client in advance (up to 30 funds); and
it aggregates absolute value of the change in the investment proportion of each investment portfolio that does not exceed 60 percent.

Insurance products

Do fintech companies that sell or market insurance products in your jurisdiction need to be regulated?

In Taiwan, selling insurance products will be considered conducting insurance business, which requires an insurance license from the FSC. A fintech company is not permitted to sell any insurance products without an insurance license from the FSC.

Credit references

Are there any restrictions on providing credit references or credit information services in your jurisdiction?

Yes. Pursuant to the Banking Act and relevant regulations, an entity collecting credit-related information from financial institutions, processing this 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-authorized entity that offers these 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 does not offer these services, no FSC approval is required, but it will still be subject to the Personal Data Protection Act regarding its collection and use of any personal data.

CROSS-BORDER REGULATION

Passporting

Can regulated activities be passported into your jurisdiction?

There is no concept of passporting right in Taiwan. To engage in regulated financial activities, a company needs to apply for the relevant licenses from the Financial Supervisory Commission (FSC). Depending on the types of regulated activities, the applicant must meet certain qualifications as required under relevant laws and FSC regulations.

Requirement for a local presence

Can fintech companies obtain a license to provide financial services in your jurisdiction without establishing a local presence?

No. Foreign companies cannot carry on regulated business (which includes financial services) without a license, and the FSC licenses required for providing financial services are not issued to foreign companies without establishing a subsidiary or a branch in Taiwan.

SALES AND MARKETING

Restrictions

What restrictions apply to the sales and marketing of financial services and products in your jurisdiction?

The Financial Consumer Protection Act (FCPA) and its related regulations provide for the general marketing rules applicable to the 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 they should ensure the truthfulness of the advertisements. In addition to the general marketing rules under the FCPA, the financial service providers may also be subject to additional marketing rules as specified in the laws and regulations governing the specific types of financial services or products.

CRYPTOASSETS AND TOKENS

Distributed ledger technology

Are there rules or regulations governing the use of distributed ledger technology or blockchains?

No.

Cryptoassets

Are there rules or regulations governing the promotion or use of cryptoassets, including digital currencies, stablecoins, utility tokens and non-fungible tokens (NFTs)?

Digital currencies (such as virtual currencies or cryptocurrencies with the applications of blockchain technology) that are not linked or tied to the currency of any nation are currently not accepted by the Central Bank of the Republic of China (Taiwan) (the Central Bank) as currencies. In December 2013, both the Central Bank and the Financial Supervisory Commission (FSC) 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 exchanging bitcoin for fiat currency). The FSC further issued a press release on 19 December 2017, in which it reiterated the government’s positions as specified in the 2013 Release and 2014 Release. Other than the above, no laws, regulations or rulings have been officially issued, promulgated or amended to specifically deal with the rise of digital currencies, except for the regulations governing tokens that have the nature of securities.

With regard to stablecoins, the Central Bank released a report on 16 December 2021, warning that stablecoins are used to facilitate speculative trading and investment in virtual assets and the price is not entirely stable as the prevalent circulation of stablecoins could cause inefficiencies in the function of price stabilization mechanisms. The report further indicates that the issuance of stablecoins must comply with the related regulations governing electronic payment institutions, banks, et cetera, if the relevant activities fall within the scope of regulated activities under e-payment and banking laws.

With respect to NFTs (which have been commonly structured to represent digital artworks, music works, collectables, baseball and basketball cards, photo albums, et cetera), recent discussions have focused on what an NFT holder actually ‘owns’ or has ‘obtained’ in relation to an NFT. The classification of any NFT and its offering should also be examined on a case-by-case basis. Also, notwithstanding the nature of any NFT being ‘non-fungible’ and unique, we still cannot completely rule out the applicability of financial law (e.g, securities regulations) due to the possible nature of investments.

Token issuance

Are there rules or regulations governing the issuance of tokens, including security token offerings (STOs), initial coin offerings (ICOs) and other token generation events?

In response to the rising amount of ICOs and other investment activities regarding digital currencies and cryptocurrencies, the FSC also expressed the following views on ICO through a press release issued by FSC on 19 December 2017:

The classification of an ICO should be determined on a case-by-case basis. If an ICO involves offer and issue of securities, it should be subject to the Securities and Exchange Act (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.

On 3 July 2019, the FSC, by issuing a ruling, officially designated cryptocurrencies with the nature of securities (namely, security tokens, as ‘securities’ under the SEA (the 2019 Ruling)). According to the 2019 Ruling, security tokens refer to those that:

utilize 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 all of the following attributes of an investment:
funding provided by investors;
providing funding for a common enterprise or project;
investors expecting to receive profits; and
profits generated primarily from 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 Taipei Exchange (TPEx) have been setting out the regulations governing STOs (the STO Rules), and the STO Rules were finalized 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 FinTech Development and Innovation and Experiment Act and, if the experiment has a positive outcome, should be conducted pursuant to the SEA. Certain other major provisions of the STO Rules (namely, for STOs of NT$30 million or less) are set out in the following.

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 TPEx or traded on the Emerging Stock Market. This indicates that a foreign entity may not act as an issuer of an STO program.
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, being a type of security under the 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: Apart from ‘professional investors’ who are eligible to participate in STOs; where the professional investor is a natural person, the maximum subscription amount is NT$300,000 per STO, to promote the development of STO, the FSC issued a press release in January 2022 (2022 press release) to adjust the policy and soon afterwards the TPEx amended the STO rules on 10 February 2022 to expand the scope of eligible foreign investors meeting certain criteria under the STO rules.
Issuance process: issuers must conduct STOs on a single platform, and the platform operator has the obligation to ensure that the issuer meets the qualification requirements and that the prospectus is 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 for security tokens: the platform operator should obtain a securities dealer license 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 market conditions. In addition, each security token under an STO program 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 program is NT$300,000. In addition, the maximum daily transaction limit for each STO is 50 percent of the total issuance amount under such STO program.

STO platform operator

Qualifications of the platform operator: the platform operator should obtain a securities dealer license, have minimum paid-in capital of NT$100 million and provide an operation bond of NT$10 million.
Total offering amount capacity: the total offering amount of all STOs on a single platform should not exceed NT$200 million. A platform can accept to process a second STO only six months after the security tokens of the first STO have been traded on the platform without material violation of the relevant regulations during the period.
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 balance statements to the TDCC for its record on a daily basis. The TDCC should provide an 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 under the same name as the account name of the bank account.

ARTIFICIAL INTELLIGENCE

Artificial intelligence

Are there rules or regulations governing the use of artificial intelligence, including in relation to robo-advice?

The Taiwan government announced the 5+2 Industrial Innovation Plan (the 5+2 Plan) in 2008, in which artificial intelligence (AI) played an important role. The 5+2 Plan mainly focuses on seven industries (namely, intelligent machinery, Asia Silicon Valley, green energy, biomedicine, national defense and aerospace, new agriculture and the circular economy), and is considered the core generator for Taiwan’s next generation of industrial development. To facilitate the 5+2 Plan, the government also launched the AI Talent Program, which aims to:

cultivate 1,000 high-caliber talents in intelligent technologies;
train 5,000 talents in practical intelligent technologies; and
attract foreign professionals.

The launch of ChatGPT has again set off a boom in the application of AI. According to relevant news reports, in response to the trend of AI developments, the Financial Supervisory Commission is contemplating including AI-related policy in its Financial Technology Development Program 2.0 to be announced in August 2023, as well as setting out relevant new rules and regulations to govern the use of AI in the financial services industry.

CHANGE OF CONTROL

Notification and consent

Describe any rules relating to notification or consent requirements if a regulated business changes control.

The rules relating to notification or approval requirements for change of control of a financial services company vary among the types of companies. For example:

bank: a prior approval must be obtained from the Financial Supervisory Commission (FSC) if an investor or its related parties has individually, jointly or collectively acquired or held more than 10, 25 or 50 percent of the voting shares of a bank;
securities firm: no prior approval from the FSC is required;
securities investment trust enterprise (SITEs): if the professional shareholder of a SITE intends to transfer its shareholding in the SITE, the SITE should report to the FSC the transfer of shares before the transfer is conducted; and
securities investment consulting enterprise: no prior approval from the FSC is required.

FINANCIAL CRIME

Anti-bribery and anti-money laundering procedures

Are fintech companies required by law or regulation to have procedures to combat bribery or money laundering?

Money laundering activities are mainly regulated by the Money Laundering Control Act (MLCA) (last amended on 7 November 2018) and its related regulations. Under the MLCA, to prevent money laundering activities, financial institutions are required to implement their own internal anti-money laundering guidelines and procedures and submit them to the Financial Supervisory Commission (FSC) for the record.

With respect to digital currency platform operators or transactions, the latest amended MLCA has brought the ‘virtual currency platforms and trading business’ into Taiwan’s AML regulatory regime, under which the enterprises falling within the designated scope would be subject to the relevant rules applicable to financial institutions under the MLCA. On 7 April 2021, Taiwan’s Executive Yuan issued a ruling (the AML Ruling), interpreting the scope of enterprises of ‘virtual currency platforms and trading business’ under the MLCA, which took effect on 1 July 2021. The scope described under the AML Ruling covers those who engage in the following activities for others:

exchange between virtual currency and New Taiwan Dollars, foreign currencies or currencies issued by mainland China, Hong Kong or Macao;
exchange between virtual currencies;
transfer of virtual currencies;
custody and administration of virtual currency or providing instruments enabling control over virtual currencies; and
participation in and provision of financial services related to the issuance or sale of virtual currencies.

After the AML Ruling was issued, the FSC promulgated the Regulations Governing Anti-Money Laundering and Countering the Financing of Terrorism for Enterprises of Virtual Currency Platforms and Trading Business. According to the regulations, the designated operators of crypto-assets and exchanges are required to establish, among other things, an internal control and audit mechanism, reporting procedure of suspicious transactions and the KYC procedure, etc. The regulations took effect on 1 July 2021, save for the provision requiring the ‘transfer-out’ of the cryptocurrency to be carried out on a no-name basis both for the transferor and transferee – the effective date of such provision will be further determined by the FSC.

Further, the FSC designated ‘cross-border small-amount remittance’ service providers exclusively for foreign workers in Taiwan to be ‘financial institutions’ under the MLCA on 9 August 2021; therefore, such providers will also be subject to the AML requirements applicable to financial institutions.

Guidance

Is there regulatory or industry anti-financial crime guidance for fintech companies?

No.

DATA PROTECTION AND CYBERSECURITY

Data protection

What rules and regulations govern the processing and transfer (domestic and cross-border) of data relating to fintech products and services?

In Taiwan, personal data is generally protected by the Personal Data Protection Act (PDPA). 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 this 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 authorized to use the data.

Cybersecurity

What cybersecurity regulations or standards apply to fintech businesses?

Different cybersecurity regulations or standards may apply to different types of financial service entities or their products or services. For example, if a type of fintech business is considered to fall within the scope of electronic banking business, in addition to the relevant licensing requirements under certain financial regulations, it should also comply with the rules governing the security control for this business.

With respect to the ‘regulatory sandbox’ under the FinTech Development and Innovation and Experiment Act, a relevant description regarding the information system and security control is required for an application for entering the sandbox.

The Cyber Security Management Act (CSMA) was enacted in June 2018. According to the CSMA, financial services firms would be required to comply with relevant obligations (including, among other things, requirements for meeting a specific security level, setting up relevant internal rules for implementing plans for maintaining information security and reporting to the government in the case of any cyber security incident) under the CSMA if they are designated by the Taiwan government as the ‘critical infrastructure provider’ (CIP) under the CSMA. While we think that no specific fintech business would be designated as a CIP, the CSMA would still apply to fintech businesses if the types of financial service entities carrying out these fintech business activities are considered Financial Supervisory Commission-regulated entities and are designated as CIPs by the Taiwan government.

OUTSOURCING AND CLOUD COMPUTING

Outsourcing

Are there legal requirements or regulatory guidance with respect to the outsourcing by a financial services company of a material aspect of its business?

The legal requirements with respect to outsourcing by a financial services company vary among the types of companies. For example, a bank’s outsourcing must comply with the Regulations Governing Internal Operating Systems and Procedures for the Outsourcing of Financial Institution Operation (the Banks’ Outsourcing Regulations), under which only the activities enumerated in the Banks’ Outsourcing Regulations can be outsourced (subject to relevant requirements such as supervision of the outsourced party and the contract with the outsourced party), and outsourcing of some activities would require prior approval from the Financial Supervisory Commission (FSC).

As for other financial services companies, for certain types of financial services companies, no single regulation exists that governs their outsourcing activities, so generally, outsourcing is allowed only if the FSC has issued any ruling permitting it. For example, a securities investment trust enterprise (SITE) is permitted to outsource its operation of evaluating fund assets, calculation of a fund’s net worth and fund accounting to a professional institution, subject to applicable requirements specified under the relevant FSC rulings.

According to the Banks’ Outsourcing Regulations, as last amended on 30 September 2019, prior approval from the FSC is required if a financial institution outsources an operation involving cloud-based services and the outsourcing is considered ‘material’ or the operation is outsourced to an overseas service provider. Further, when outsourcing involves cloud-based services, the financial institution shall, among other things:

ensure appropriate diversification of cloud service providers;
retain full ownership of the data outsourced to the cloud service provider; and
ensure the location for processing and storage is within Taiwan (with certain exceptions).

Cloud computing

Are there legal requirements or regulatory guidance with respect to the use of cloud computing in the financial services industry?

When the use of cloud computing involves outsourcing the operations of a financial institution, relevant laws and regulations governing outsourcing activities should be complied with. In general, an outsourcing activity should follow the internal rules and procedures of the financial institutions, and in certain circumstances, prior approval from the FSC would be required. The use of cloud computing should also comply with the Personal Data Protection Act.

ensure appropriate diversification of cloud service providers;
retain full ownership of the data outsourced to the cloud service provider; and
ensure the location for processing and storage is within Taiwan (with certain exceptions).

It is noteworthy that the FSC announced that it plans to amend the Banks’ Outsourcing Regulations. According to the relevant draft amendment, a Taiwanese bank would not be required to apply to the FSC to obtain its prior approval for all of the offshore outsourcing arrangements. Instead, only when a bank intends to outsource its business activities regarding the retail financial business information systems to an offshore service provider, and such outsourcing is deemed ‘material’, shall such bank apply to the FSC for its prior approval. According to the FSC’s official press release, it expects to complete the amendments and put them into effect in September 2023, while when the amendments will become effective is still uncertain.

INTELLECTUAL PROPERTY RIGHTS

IP protection for software

Which intellectual property rights are available to protect software, and how do you obtain those rights?

Software can be protected by intellectual property rights such as patent, copyright or trade secret. 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. For copyrights and trade secrets, there are no registration or filing requirements for a copyright or a trade secret to be protected by law. However, there are certain features that qualify a copyright or trade secret, such as ‘originality’ and ‘expression’ for copyrights, and ‘economic valuable’ and ‘adoption of reasonable protection measures’ for trade secrets.

According to the Patent Act of Taiwan, the subject of a patent right is ‘invention’ and an invention means the creation of technical ideas, utilizing 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 software-implemented inventions, 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 unpatentable; however, a ‘method of using financial information system to process foreign exchange transactions’ might be patentable.

IP developed by employees and contractors

Who owns new intellectual property developed by an employee during the course of employment? Do the same rules apply to new intellectual property developed by contractors or consultants?

Intellectual property developed by an employee during the course of employment

With regard to a patent, 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.

A trade secret is the result of research or development by an employee during the course of performing his or her duties under employment and it will belong to the employer unless otherwise agreed by the parties.

For copyright, where a work is completed by an employee within the scope of employment, the employee is the author of the work but the economic rights to this work will be enjoyed by the employer unless otherwise agreed by the parties.

Intellectual property developed by contractors or consultants

In respect of patent rights and trade secrets, the agreement between the parties will prevail, or these rights will be vested in the inventor or developer in the absence of such agreement.

However, if there is a fund provider, the funder may use this invention.

In respect of copyright, the contractor or the consultant 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 these rights will be enjoyed by the contractor or the consultant in the absence of such agreement. However, the commissioning party may use the work.

Joint ownership

Are there any restrictions on a joint owner of intellectual property’s right to use, license, charge or assign its right in intellectual property?

In respect of patents and trademarks, each joint owner may use the jointly owned rights at his, her or its discretion; however, a joint owner may not license or assign the jointly owned rights without consent of all the other joint owners. In respect of copyrights and trade secrets, each joint owner may not use, license or assign the rights without unanimous consent of the other joint owners, while the other joint owners may not withhold the consent without reasonable cause.

Trade secrets

How are trade secrets protected? Are trade secrets kept confidential during court proceedings?

Trade secrets are protected if they satisfy the following constituent elements:

information that may be used in the course of production, sales or operations;
having the nature of secrecy;
economic value; and
adoption of reasonable protection measures.

To keep the trade secrets confidential during court proceedings, the court trial may be held in private if the court deems it appropriate or it is otherwise agreed upon by the parties. The parties and a third party may also apply to the court for issuing a ‘confidentiality preservation order’, and the person subject to this confidentiality preservation order should not use the trade secrets for purposes other than those related to the court trial or disclose the trade secrets to those who are not subject to the order.

Branding

What intellectual property rights are available to protect branding and how do you obtain those rights? How can fintech businesses ensure they do not infringe existing brands?

The Trademark Act in Taiwan provides for the protection of brands. The rights of trademarks can be obtained through registration with Taiwan’s Intellectual Property Office. The term of protection is 10 years from the date of publication of the registration and may be renewed for another 10 years by filing a renewal application.

Every registered trademark will be published on the official website maintained by the Intellectual Property Office and the trademark search system is accessible to the general public. On the search system, a fintech business may check whether an identical or similar trademark exists and who the proprietor of a registered trademark is.

Remedies for infringement of IP

What remedies are available to individuals or companies whose intellectual property rights have been infringed?

Patent

With regard to infringement of an invention patent, the patentee may claim for damage suffered because of the infringement. The amount of damages may be calculated by:

the damage suffered and the loss of profits as a result of the infringement;
profit earned by the infringer as a result of patent infringement; or
the amount calculated on the basis of reasonable royalties.

If the infringement is found to be caused by the infringer’s willful act of misconduct, the court may at most triple the damages to be awarded. Patent infringements have been decriminalized since 2003.

Copyright

The damage suffered because of copyright infringement may be claimed in the process of civil procedure. As for criminal liabilities, there are different levels depending on different types of infringement, ranging from imprisonment, of no more than three years, and detention to a fine of no more than NT$750,000.

Trademark

The damage suffered because of trademark infringement may be claimed in the process of civil procedure. As for criminal liabilities, any person shall be liable to imprisonment for a period not exceeding three years or a fine not exceeding NT$200,000, or both, if he or she:

uses a trademark that is identical to the registered trademark in relation to identical goods or services;
uses a trademark that is identical to the registered trademark in relation to similar goods or services and hence there exists a likelihood of confusion for relevant consumers; or
uses a trademark that is similar to the registered trademark in relation to identical or similar goods or services and there exists a likelihood of confusion for relevant consumers.

On 4 May 2022, the Legislative Yuan amended the Trademark Act to stipulate that any person who intends to use identical merchandise or services with a registered trademark and a collective trademark for himself or herself or any person, and sells, manufactures, possesses, displays, exports or imports labels, tags, containers or products related to services with a sign identical or similar to another person’s registered trademark or collective trademark shall be liable to imprisonment for a period not exceeding a year or a fine not exceeding NT$50,000. The same liability also applies to any person who infringes a trademark on social media and the internet. The Executive Yuan has yet to determine the effective date of this amendment.

Trade secrets

The damage suffered because of infringement of trade secrets may be claimed in the process of civil procedure. As for criminal liabilities, a person may be sentenced to a maximum of five years imprisonment and, in addition, a fine between NT$1 million and NT$10 million if he or she:

acquires a trade secret by an act of theft, embezzlement, fraud, threat, unauthorized reproduction or other wrongful means, or uses or discloses a trade secret that has been acquired;
carries out an unauthorized reproduction of, or uses or discloses, a trade secret that he or she has knowledge or possession of;
fails to delete or destroy a trade secret in his or her possession as the trade secret holder orders, or disguises it; or
knowingly acquires, uses or discloses a trade secret known or possessed by others that is under the circumstances specified in points (1) to (3) above.

COMPETITION

Sector-specific issues

Are there any specific competition issues that exist with respect to fintech companies in your jurisdiction?

In April 2016, the Financial Supervisory Commission (FSC) issued a press release pointing out the regulatory issues that may arise from peer-to-peer lending activities. According to this and other sources, the FSC is of the view that:

if it is arranged that the lender (as a member of the platform) splits the original credit into several parts and in turn allocates and ‘sells’ the divided parts to other ‘members’ for investment with high return, it might involve regulatory issues regarding multilevel marketing; or
if the platform operators claim that the transaction has the nature of high return, low cost and low risk, it might constitute false or misleading advertising and would result in a violation of the Fair Trade Act.

The above two issues are under the supervision of the Fair Trade Commission.

TAX

Incentives

Are there any tax incentives available for fintech companies and investors to encourage innovation and investment in the fintech sector in your jurisdiction?

Currently, there are no tax incentives specifically provided for fintech companies.

Generally, a company may choose to credit either up to 15 percent of its total expenditure on research and development against its corporate income tax payable for that year; or up to 10 percent of its total expenditure on research and development against its corporate income tax payable for each of the three years starting from that year, provided that the deduction amount did not exceed 30 percent of the corporate income tax payable for the company in that year and that it did not commit any material violation of any law on environmental protection, labor or food safety and sanitation in the past three years. To apply such tax credits, a company must apply to and receive approval from the government.

Increased tax burden

Are there any new or proposed tax laws or guidance that could significantly increase tax or administrative costs for fintech companies in your jurisdiction?

Currently, there are no such new tax laws or guidance and, to our understanding, currently, there are no such proposals.

IMMIGRATION

Sector-specific schemes

What immigration schemes are available for fintech businesses to recruit skilled staff from abroad? Are there any special regimes specific to the technology or financial sectors?

The Act for the Recruitment and Employment of Foreign Professionals, as enacted in 2017, aims to attract foreign talents to increase Taiwan’s competitiveness. Although this Act was not specifically enacted for the area of fintech, we believe that fintech talents would be among those that Taiwan wants to attract. The key measures proposed under this Act are:

the relaxation of regulations on work, visa and residence;
the easing of provisions concerning the stay or residence of parents, spouses and children; and
providing benefits regarding retirement, insurance and tax.

In response to the demand for talent for globalization of financial markets and the rapid development of emerging technologies, the Financial Supervisory Commission issued an amendment to ‘Qualifications and Recognition of Specified Foreign Professionals with Special Expertise in the Financial Field’ on 15 December 2020. The main amendments were made to relax certain minimum requirements of the period of employment for applicants with relevant qualifications.

UPDATE AND TRENDS IN FINTECH IN TAIWAN

Current developments

Are there any other current developments or emerging trends to note?

New applications of cryptocurrency and blockchain technology, such as decentralized finance (DeFi) and non-fungible tokens (NFTs), have been a hot topic in Taiwan over the past one to two years.

Although the government does not seem to have given an official view or caution on the rise of DeFi activities, from a local perspective, the classification of any DeFi activities should be determined case by case, and there are currently no specific laws or regulations promulgated by the government to regulate or provide a legal basis for the development of DeFi. Laws such as those relating to banking, trusts and futures would need to be reviewed to ensure legal compliance.

In December 2021, in response to the digital transformation of the insurance industry and the need to develop and promote relevant innovative insurance products, the Financial Supervisory Commission (FSC) proposed a new policy on the establishment of digital-only insurance companies, including a policy roadmap and a tentative timeline. Relevant amendments were made by the FSC for setting forth the requirements for establishing digital-only insurance companies and the relevant regulations for insurance solicitation, underwriting and claims settlement. According to the FSC’s newsletter, two applications were filed with the FSC by 31 October 2022 while both of them were not approved by the FSC. According to relevant news reports, the FSC is still exploring the feasibility of re-opening for the applications of digital-only insurance companies by the end of 2023 depending on factors such as the market trend of the insurance industry.

* The information in this chapter was accurate as of May 2023.

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