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Taiwan’s Central News Agency reported on March 19, 2023 in an exclusive story that the Executive Yuan decided to improve the regulation of cryptoassets and designate the Financial Supervisory Commission (FSC) as the competent authority, and the official announcement is coming earlier. like the end of March.
A spokesman for the Executive Yuan confirmed the report and added that the decision was made after studying countries – such as European Union countries, Singapore and Japan – where the crypto sector is overseen by the relevant financial services regulatory body.
Greater regulatory clarity and more
However, the spokesperson added that while cryptoassets used for trading and payments may naturally fall within the SFC’s jurisdiction, this may not be the case for other cryptoassets. Because of the many different species available, it is a challenge for any agency to monitor them. The Executive Yuan is currently coordinating efforts across multiple agencies to determine the scope and extent of regulation.
Using fiat-backed stablecoins as an example, the spokesperson said Taiwan’s central bank might be a more appropriate regulator. Similarly, non-fungible tokens (NFTs) used as digital proof of identity may be subject to oversight by the Ministry of Digital Affairs or other government agencies, depending on the use cases of the actual NFTs.
Another government official also revealed that the regulatory regime will be implemented in phases – with industry self-regulation coming first.
The FSC will formulate principles-based guidance for the industry, which is expected to develop best practices and internal controls in areas such as asset segregation, wallet management and token listing. In the meantime, the FSC will continue to study international trends before enacting cryptocurrency-specific legislation.
A day later, the chairman of the FSC confirmed most parts of the story in a conversation with reporters in the Legislative Yuan, indicating that the FSC will follow the instructions of the Executive Yuan in the next steps.
He also said that it is “too early” to discuss the development of a separate law for cryptoassets. Under current regulation, crypto companies only need to declare that they comply with the necessary anti-money laundering and anti-terrorist financing requirements as outlined by the FSC in order to legally operate in Taiwan.
Initial reactions and industry response
The crypto sector in Taiwan wasted no time reacting to the news. According to media articles, exchanges are now trying to rally support from local companies for less onerous regulation. Binance Holdings, Matrixport Technologies and Woo Network LLC are reportedly drafting a document calling for friendlier regulation that provides clarity for crypto companies operating in Taiwan.
In the document, exchanges expressed concern over the regulation of cryptoassets under existing rules for financial services, which could be challenging to apply to the crypto sector and make it confusing for companies, authorities and customers. The three exchanges also argued that stricter regulation could lead to financial losses for clients trading on global platforms and force further trading activity to go underground – harming the industry’s growth and progress.
In search of the Goldilocks zone
Despite the recent setbacks and volatility in the crypto sector, it is encouraging to see that the inexorable march of crypto regulation continues in Asia. For Taiwan, the FSC’s willingness to work with the industry on self-regulation provides an opportunity for the crypto sector to help develop a regulatory regime that promotes compliance and innovation, creating investor confidence.
However, for this to work, crypto companies must also play their part by constructively engaging Taiwan’s government to understand its concerns about the various risks posed by cryptoassets – such as money laundering and terrorist financing – and the need to protect investors.
At the same time, the government must remain open to industry concerns about over-regulation and the application of existing rules that may not be appropriate for the crypto sector. Rather than adopting a “same risks, same rules” approach, the FSC could instead consider a “same risks, same regulatory outcome” approach.
Treading a fine line between caution and paranoia, Taiwan could strike the elusive balance of sound regulation and responsible innovation in a crypto sector that may very well become another engine of the country’s growth.
If you run a crypto-asset business in Taiwan and want to stay ahead of the country’s new regulatory developments, contact us to speak with one of Elliptic’s experts and discuss in more detail how we can help your business comply with financial crime.
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