The Financial Supervisory Commission (FSC) last week announced guidelines for virtual asset service providers (VASPs), six months after the Executive Yuan had tasked the regulator with overseeing virtual currency platforms and transactions to comply with rules against laundering and counter the potential financing of terrorism.
Virtual assets are broadly defined as digital representations of value that can be traded and used for payments or investment purposes. This includes cryptocurrencies such as bitcoin and other crypto assets, but does not include digital representations of fiat currencies or general securities and derivatives. A VASP is an entity or individual that provides services associated with virtual assets.
Amid concerns over virtual currency investments after the insolvencies of several overseas virtual asset exchanges last year, and following in the footsteps of international supervisory organizations and regulators in more closely monitoring the virtual currency sector, the commission said in a news release on Tuesday that it would bolster protection for customers using domestic VASPs under new guidelines.
Major points of the guidelines include the disclosure of information by VASPs, review procedures for product launches and withdrawals, the separation of assets between customers and platform operators, and the assurance of transparency and fairness in transactions. Preventing money laundering, promoting internal controls and external auditing, ensuring information security, enhancing customer asset custody, and managing so-called “hot” and “cold” crypto wallets are also part of the guidelines.
The regulator next plans to ask platform operators to establish a self-regulating mechanism that allows members of the sector to monitor their legal, ethical and security standards, as well as enhance internal controls and improve customer protection in accordance with the VASP guidelines, it said.
For the time being, the FSC seems to have no intention of seeking special legislation concerning the virtual asset sector and does not want to act as a comprehensive regulatory body for it nor offer licenses to VASPs as has occurred in Hong Kong, Japan and Singapore. The commission’s approach of relying on the guidelines and a self-regulating mechanism should give the sector room for further development and innovation in Taiwan.
Although the commission might be offering the sector an opportunity to build trust with the public, and a hands-off approach would be welcome news to VASPs, it would be better for the commission to at least reserve the power to inspect domestic virtual asset platforms, at least when things go wrong. In the long term, the commission should consider legislation or enhance its regulatory power to support healthy growth in the domestic virtual asset sector.
After all, the nation’s only law governing cryptocurrency trading is the Regulations Governing Anti-Money Laundering and Countering the Financing of Terrorism for Enterprises Handling Virtual Currency Platforms or Transactions (虛擬通貨平台及交易業務事業防制洗錢及打擊資恐辦法), which was implemented in June 2021, but might not apply to all potential contraventions in certain circumstances.
With investors being defrauded or experiencing losses related to virtual asset transactions in overseas markets, critics say Taiwan’s regulations offer no assistance or protection to domestic investors, and the commission’s announcement is much belated compared with its foreign peers.
As a result, the FSC must continue to review and adjust its regulatory measures on a rolling basis and accumulate feedback from domestic VASPs to ensure the sector’s long-term development. As virtual assets involve the affairs of various government agencies, the commission needs to cooperate closely with them and continue monitoring the actions of international organizations and regulators in determining how to appropriately regulate the sector.
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