Taiwan Issues New Regulatory Guidelines For Crypto

Taiwan's Financial Supervisory Commission (FSC) has taken significant steps to regulate the cryptocurrency industry, aiming to protect cryptocurrency users and enhance oversight. The FSC released a set of guidelines on September 26, targeting Virtual Asset Service Providers (VASPs) to ensure a safer and more transparent environment for cryptocurrency transactions in Taiwan.

The FSC's move towards cryptocurrency regulation began in March when it confirmed its intention to closely oversee the cryptocurrency exchange sector. Since then, the commission has been actively enforcing anti-money laundering regulations on all cryptocurrency exchanges operating within Taiwan.

The newly introduced guidelines emphasise several key aspects:

1. Asset Separation: Cryptocurrency exchanges under the FSC's jurisdiction must segregate and protect company treasury assets from customer assets. This separation ensures that customer funds remain distinct and secure.

2. Listing and Delisting Standards: The guidelines establish new standards for the listing and delisting of digital assets on exchange platforms. This move enhances transparency and provides users with more information about the cryptocurrencies available for trading.

3. Information Disclosure: The guidelines emphasise the importance of transparency, requiring cryptocurrency firms to disclose essential information to users. This transparency helps users make informed decisions and reduces the risk of fraudulent activities.

4. Foreign VASP Registration: Foreign cryptocurrency firms wishing to operate in Taiwan or serve Taiwanese customers must register with the FSC and demonstrate compliance with anti-money laundering regulations. These regulations were initially introduced in July 2021.

5. Self-Regulation: The FSC encourages self-regulation within the cryptocurrency industry. Industry and self-regulatory bodies are expected to establish norms based on the new guiding principles to further enhance customer protection.

These guidelines align with the global trend of increasing regulatory scrutiny in the cryptocurrency industry, driven in part by the market's spectacular collapse in 2022. Concerns arose about how cryptocurrency firms custody their clients' assets, particularly after court filings in the bankruptcy proceedings of the crypto exchange FTX revealed potential commingling of customer funds with company assets.

The FSC also draws from cryptocurrency regulations implemented by the European Union, Japan, and South Korea, demonstrating a commitment to align Taiwan's regulatory framework with international standards.

In response to the FSC's guidelines, major cryptocurrency exchanges in Taiwan have taken a proactive approach by forming a self-regulatory association. This collaborative effort involves nine prominent local exchanges, including Maicoin, BitstreetX, Hoya Bit, Bitgin, Rybit, Xrex, Shangbito, and others. Their objective is to define and establish self-regulatory norms by mid-October, aligning with the FSC's guiding principles.

This industry association seeks to facilitate dialogue with regulators, integrate various stakeholders within the cryptocurrency ecosystem, and contribute to the responsible growth of the industry. The group aims to foster unity and cooperation to build a robust industry chain, emphasising the importance of transparency and communication.

Taiwan's FSC is further tightening regulations by effectively banning unregistered foreign cryptocurrency exchanges from operating within the country. This action is in line with Taiwan's commitment to enhancing investor protection and promoting responsible practices in the cryptocurrency sector.

Foreign VASPs are not permitted to offer their services in Taiwan unless they have obtained the necessary approval and registration from the regulatory authorities. These measures align with Taiwan's ongoing efforts to regulate and oversee the cryptocurrency market more comprehensively.

In addition to these regulatory moves, Taiwanese lawmakers have proposed an amendment to create a dedicated bureau within the FSC specifically for cryptocurrency-related matters. If approved, this amendment would expand the FSC's regulatory scope to cover cryptocurrencies alongside its existing oversight of banking, securities, futures, insurance, and auditing.

Overall, Taiwan's FSC is taking decisive steps to ensure the safety and transparency of the cryptocurrency market within its jurisdiction, aligning with global regulatory trends and working with industry stakeholders to establish effective self-regulation.