Implications of Taiwan’s Guiding Principles for the Crypto Industry

In March 2023, Taiwan’s yuan executive designated the Financial Supervisory Commission (FSC) as the authority for virtual assets (VA) used for investment and payments. Following the appointment, the FSC announced three upcoming measures it will introduce in phases to monitor and support the VA industry in Taiwan – the first of which is Guiding Principles for the Sector.

According to an article published by the Central Taiwan News Agency on September 7, officials confirmed that the FSC has completed an initial draft of 10 guiding principles that will be made public by the end of the month.

While technically non-binding, the FSC has previously suggested it will monitor industry compliance and take the necessary steps to ensure compliance – including relying on existing laws to enforce or implementing new laws in the future.

Guiding Principles for Industry

The 10 guiding principles are as follows:

1. Strengthen VA issuance management: The issuer should disclose the VA white paper and other relevant information on its website, which should be linked to the website of any VA issuing platform.
2. Establish a review mechanism for listing and delisting VAs: Companies should establish standards and procedures for reviewing white papers, and listing and delisting VAs, and incorporate them into their internal controls.
3. Ensure separate custody of user assets from platform funds: All fiat currencies or VAs received by the platform from clients to facilitate transactions and payments should be segregated and kept separate from the platform’s own funds.
4. Improve fair and transparent trading: the platform should formulate and make publicly available its trading rules for VA, as well as establish relevant mechanisms to ensure fair trade.
5. Strengthen contract drafting, advertising and solicitation, and complaint resolution: Platforms should adhere to customer protection obligations by being fair, reasonable, just and fair in their dealings.
6. Establish operational systems, information security and hot and cold wallet management measures: the platform should have an appropriate regime for business continuity, information security and wallet private key management.
7. Public release of relevant information: The platform should publicly release and disclose information in areas such as VA issuance, product listing and delisting, asset segregation and custody, trading rules, transaction details and customer protection.
8. Strengthen internal controls and audit systems: the platform should establish internal control and audit systems to ensure independent and objective operations and accept on-site inspections by FSC or trusted institutions.
9. Ensure that anti-money laundering obligations apply equally to natural and legal persons: FSC will clarify that natural persons carrying out VA activities will have to submit a declaration of compliance with relevant anti-money laundering and countering the financing of terrorism (AML / CFT) measures, which will be equivalent to the requirements of legal entities operating in Taiwan.
10. Prohibit offshore platforms from soliciting work in Taiwan: The FSC will stipulate that offshore platform operators, who do not register in Taiwan under the Companies Act and submit a declaration of compliance with AML/CFT regulations, will not be able to solicit work in Taiwan or market its services to the Taiwanese public.

Potential impact and implications

Undoubtedly, the most important principle is the last one, which prohibits foreign firms from marketing their services or soliciting work in Taiwan.

While it is unclear how the FSC will implement this without specific legislation – unless it intends to rely on existing AML/CFT laws – it is a warning to many exchanges that purport to represent global entities and target domestic customers but refuse to be subject to local rules and regulations .

If they continue to target the Taiwanese market, these firms run the risk of enforcement actions and having their access restricted – for example, by banning their IP addresses – although this may be easier said than done.

However, the guiding principles, once confirmed and published, will encourage existing major players in Taiwan – such as ACE and MaiCoin – operating trading platforms to comply with relevant anti-money laundering and anti-terrorist financing requirements. Their clients can be confident that they adhere to the guiding principles – which have been developed with customer protection in mind – with a focus on asset segregation, operational issues and fair trading.

The next step will then be to develop a self-regulatory regime in line with the guiding principles of the Taiwan Virtual Asset Service Providers (VASP) trade association. As the FSC said earlier, if the VA industry in Taiwan is to grow, it is vital for the trade association to implement strong industry self-regulation to gain the trust and confidence of customers.

It will be interesting to see what the self-regulatory regime looks like and how it all shakes out in the end. It’s clearly an exciting time to be running a VA business in Taiwan!

If you’d like to learn more about regulations in Taiwan, check out our country guide or contact us to understand how we can help your crypto business comply with financial crime.