Taiwan set to roll out new AML rules for Taiwanese crypto exchanges

Tim Chwe | Forkast.news
April 27, 2021

Against a backdrop of government warnings and tightened supervision over digital assets, Taiwan is poised to roll out new regulations that would heighten anti-money laundering requirements for cryptocurrency exchanges operating on the island.

Taiwan’s new regulations will supervise its crypto industry more closely — but the rules will also offer clarity and certainty that could make Taiwan into a more popular destination for crypto startups in the future, experts say.

The new rules, which will take effect on July 1, would classify cryptocurrency exchanges and other platforms that operate security token offerings as institutions governed by the Money Laundering Control Act (MLCA), according to Taiwan’s Financial Supervisory Commission (FSC).

The exchanges in Taiwan will be required to report transactions worth over NT$500,000 (US$17,800) conducted in cash, and they also will need to fulfill know-your-customer (KYC) requirements to ensure identity authentication of their clients.

The FSC’s move came after the Executive Yuan, Taiwan’s highest administrative organ, announced earlier this month that cryptocurrency trading platforms and exchanges would fall under the provisions of the MLCA’s definition of “virtual currency platforms.” It then instructed the FSC to set up relevant rules.

In general, the MLCA requirements are in line with the guidance released by the Financial Action Task Force (FATF), an independent inter-governmental body that develops policy to counter money laundering.

Greater scrutiny a step towards normalization

Greater government scrutiny of cryptocurrency in Taiwan does not come as a surprise for those in the know.

“I think this is a right step towards the normalization of the crypto industry,” Jason Hsu, a former legislator in Taiwan who promoted fintech and blockchain innovation, told Forkast.News. Hsu was part of the task force that amended the MLCA in 2018. “I’m totally aware of the importance for us to create a guideline for virtual assets,” he said.

“What I hope for is that the government can treat this industry as an add-on strength rather than a threat to our business environment,” Hsu said, adding it is an opportunity for Taiwan to attract more talent, especially given its favorable handling of the Covid-19 pandemic. “We can take the opportunity to attract more crypto startups to come set up offices in Taiwan.”

The new rules, however, will not significantly affect the operation of major exchanges in Taiwan, because many of them already have in place well-rounded anti-money laundering mechanisms.

David Pan, director and advisor of ACE Exchange, a Taiwan-based fiat-to-cryptocurrency exchange that is subject to the supervision of the new rules, told Forkast.News that he would not worry too much about the potential impact brought by the new regulations.

“We’ve connected our system well with the criminal and investigative authorities, and we’ve already made lots of efforts in establishing KYC and anti-money laundering mechanisms,” Pan said.

The three major Taiwan-based exchanges – ACE, MaiCoin Ltd. and BitoPro – are “already doing pretty solid KYC,” said Wayne Huang, a cybersecurity expert and co-founder of XREX Inc., a Taipei-headquartered exchange and trade technology solutions provider.

“They (exchanges) might need to adopt some better technology. They might need to acquire some third-party technology to help them improve their AML (anti-money laundering) detection,” Huang said, adding that he doesn’t expect the major exchanges to be affected that much by the new rules.

Regulatory hurdles with foreign exchanges

Taiwan’s regulatory shift offers a “signal that Taiwan is ready to work with exchanges from around the world,” Hsu said.

However, there are concerns about how Taiwanese authorities would extend such governance to foreign exchanges.

Carol Lin, a law professor at Taiwan’s prestigious National Chiao Tung University, told Forkast.News that a key challenge faced by regulators is the fact that some trading platforms are not registered in Taiwan, making it hard to regulate them. “They can easily move to another location to avoid penalties,” she said, adding that the regulatory approach for virtual platforms is very different from that for banks, which have a fixed location.

“That’s why regulators constantly warn investors to be cautious because the risk (in the cryptocurrency sector) can be much higher than banks’,” Lin said.

There have been cases where swindlers shaped up a scam under the name of investing in mining machines, said Lin, whose expertise lies in criminal law and regulations related to fintech and money laundering.

“It’s rather easier than you think to convince people into buying something that comes with technical jargon and rhetoric, especially when they don’t have that many investment options,” Lin said.

Copyright © 2021 Forkast News

Executive Yuan, Taiwan’s highest administrative organ, announced earlier this month that cryptocurrency trading platforms and exchanges would fall under the provisions of the MLCA’s definition of “virtual currency platforms.” It then instructed the FSC to set up relevant rules.

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