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Financial “Sandbox Experiment” adds new rules, triggering new Entrepreneurs

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“The spirit of experimentation is completely lost,” said a new venturer of financial technology who did not want to be named. “The spirit of experiment is not to lower costs and lower the legal threshold? Now it is like raising the threshold of law.” This anxiety is due to the fact that in the future, “non-financial operators” will enter the financial supervision sandbox experiment, and they must also become the object of management of money laundering and anti-terrorism.

On March 21, the FSC previewed the draft “Financial Technology Innovation Experiments to Prevent Money Laundering and Combating Terrorism”. However, financial entrepreneurs believe that the regulations do not clearly state that the operators engaged in project experiments need to follow. It is easy to fall into the situation where all financial technology can be applied to innovative experiments, so that the cost of the experiment is getting higher and higher, and the original intention of innovation is lost.

“Non-financial operators” must also follow the law on money laundering and anti-terrorism

First, let’s take a look at the cause and effect of the incident. On January 31 this year, the FSC approved two innovative experiments on small-scale cross-border remittances for foreign migrant workers handled by non-financial institutions.

The participating companies are Hong Kong Commercial Union Allianz and Tongzhen. The content of the experiment is mainly to provide cheaper remittance services for foreign migrant workers such as Vietnam, Indonesia, the Philippines and Thailand. It is expected to be opened in late April and early May 2019.

Then, on the 21st of this month, the FSC will announce the draft of the “Financial Science and Technology Innovation Experiment to Prevent Money Laundering and Counter-terrorism Measures.” In brief, the draft mentions the establishment of the name checking procedures and monitoring trading policies of the relevant parties to the transaction. To confirm the identity of the participant (including continuous review), the applicant needs to determine the intensity of the execution based on the risk-based method and specify the circumstances in which the participant should be refused to establish a business relationship or transaction.

▲ Because it involves “cross-border remittances”, even “non-financial operators” must comply with the law on money laundering prevention and anti-terrorism. (Source: pixabay )

The applicants applying for the experiment must keep the identity confirmation, correspondence and transaction records, the scope of preservation, the method and the time limit of the participants, and must establish an internal control and auditing system for money laundering prevention, so that the competent authorities can send personnel to check at any time.

The draft is mainly for two mobile cross-border remittance experiments that will be on the road. Although the participants of this experiment have only about 2,000 foreign migrant workers, the remittance amount is below NT$30,000, regardless of the participants. Or the content of the experiment is relatively simple, but because it involves “cross-border remittances”, even if it is a “non-financial business”, it must still abide by the law on money laundering prevention and anti-terrorism.

Taking the new venture into the financial industry, the financial technology industry: losing the sandbox spirit

As the draft came out, many financial technology operators felt very anxious. “This is to return to the standard of the financial management industry to supervise the financial industry, completely lose the spirit of experimentation.” A new entrepreneur who did not want to be named told the “Digital Times” that he believes that the practice of the FSC is to write the terms first. Only the prospectives do.

However, the most fundamental spirit of innovation is to let the operators applying for the sandbox experiment perform for a while, and then follow the results of the experiment. For the “non-financial operators” applying for sandbox experiments, the position of the competent authority should assist in the development of innovation. Not supervision. “This is exactly the same as the financial industry!” Many operators are worried that the cost of preparing sandbox experiments in the future will be higher and higher.

In addition, the draft does not specify the types of projects that the operators must follow, and it is easy for all financial technology to enter the innovation experiment. This will undoubtedly raise the cost of innovation and violate the spirit of innovative experiments. The industry believes that: It is acceptable to amend the regulations after the experiment, but not now.”

For some of the experimental services business, it is necessary to cooperate with the anti-money laundering regulations. The operator said: “In principle, it is agreed, but in terms of methods and mechanisms, it is required to follow the terms and conditions. When the experiment has not been completed, the terms and conditions are set to limit the innovation industry. It is equivalent to putting the FinTech industry into the framework of traditional financial supervision.

One industry operator said: “Many industries have demand for money laundering and prevention. This is covered by the money laundering prevention method itself. Of course, KYC (Know Your Customer) is required in the experiment, but there can be more innovative practices.”

For financial technology that must be protected against money laundering, the industry believes that it should not only write out the requirements of the law, but also the tools of money laundering and prevention to the new entrepreneurs of financial technology. For example, like a blacklist query system, at least the experimenter has tools to check.

Fintech new entrepreneurs suggest not to add new methods to the innovation experiment regulations because of opening new experimental projects, but to return to the spirit of the innovation experiment regulations. “The experiment is to lower costs and lower the legal threshold.” In the process, various mistakes are allowed. After the final inspection of the experimental results, a long-term legislative amendment is made. “If not, the meaning of the sandbox will be lost!”

In response to the doubts of the industry, the FSC said that the experimental forms of financial technology innovation are diversified, and the money laundering prevention and anti-terrorism risks that different experimental businesses need to follow are actually different. The competent authorities will follow the actual experimental cases approved by the competent authorities. To set different rules.

Shivam Singh
Founder of the TechGrits, has always looked at technology as a piece of knots. From an early age connected to the technological world, this is literally your dream job.

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