Risk control triggers user backlash! MaiCoin/MAX freezing accounts sparks conspiracy theories, do exchanges have standards for risk control?

Recently, a user named binary9507 on the online forum PTT posted on the DigiCurrency board, suggesting that the Taiwanese exchange MaiCoin Group may be profiting through "extended risk control reviews," sparking discussions within the community. MaiCoin issued a statement denying the rumors but did not specify the exact criteria for an account being restricted due to "risk control." Users of various exchanges in Taiwan have often encountered situations where their accounts are restricted. Why does this happen?

Netizens Alleged Maicoin/MAX Freezing Accounts Conspiracy: Misappropriation of Assets

PTT netizen binary9507 described a scenario at an internal meeting of a certain company. In the dream scenario, the company's management was discussing how to increase revenue through illegal or unethical means, particularly by extending the risk control review time to utilize customer funds for investments, pledges, and loans. Ultimately, these actions led to a significant increase in the company's performance, and the management showed no fear of potential legal risks, believing that customers could not resist the company's operations.

Posts also discussed several netizens posting notifications of failed withdrawals from Taiwan fiat currency exchanges after transferring from overseas cryptocurrency exchanges. Netizens pointed out that even after submitting the required documents requested by the exchange, they were still unable to successfully "withdraw" fiat currency.

These situations have led netizens to speculate whether the "misappropriation of assets theory" proposed by netizen binary9507 is true?

Since Taiwan fiat currency exchanges can only engage in spot trading and debt products to profit, and most Taiwanese users only use local fiat currency exchanges for deposit and withdrawal purposes. Is it possible to maintain the liquidity of digital assets or fiat currency through risk control procedures and even profit, raising doubts among many netizens?

MaiCoin/MAX Response: Committed to Combating Fraud, Do Not Believe in False Rumors

From MaiCoin/MAX's response, it is evident that their risk control measures are based on "fraud" to ensure the security of user accounts and funds. Additionally, due to manpower factors leading to extended review times, they hope to balance combating fraud and user experience. Maicoin/MAX denied rumors of misappropriation of assets and urged netizens to make rational judgments.

Currently, the review time announced by MaiCoin/MAX is: Review within 7-14 working days after complete data submission. Therefore, if an account is restricted, the review will be conducted one to two weeks after submitting the review data.

Why Do Taiwanese Cryptocurrency Exchanges Implement Risk Control Measures?

Visiting two major Taiwanese exchanges, MaiCoin and BitoPro, among others, it was found that the risk control objectives of different operators were largely similar: combating fraud, anti-money laundering, and anti-terrorism financing. Users of each platform may encounter risk control situations, where activities in "fiat currency" and "cryptocurrency" accounts are restricted.

What Are MaiCoin's Risk Control Standards?

MaiCoin stated that they cannot publicly disclose risk control standards and adhere to the explanations in the announcement. According to reporters, MaiCoin's risk control mechanism is determined by the comprehensive behavior of user accounts. With increasing demand for anti-money laundering and anti-fraud measures, this may result in extended review times.

What Are BitoPro's Risk Control Standards?

BitoPro stated that to protect user assets and combat fraud, BitoPro exchange has established a comprehensive anti-fraud process, with a transaction monitoring system equivalent to financial industry standards. Beginning with KYC, connecting to different databases, real-name authentication is implemented. For suspicious transactions, BitoPro has developed its transaction monitoring system to analyze suspicious transaction patterns in real-time.

In the investigation phase, BitoPro cooperates closely with law enforcement agencies, reporting and providing the necessary account and transaction data for 165 investigations. Additionally, BitoPro blocks and freezes blacklisted addresses reported, and in cases of fraud or dummy accounts, BitoPro enforces account closures based on the criminal police's list of actors and cooperative bank's deposit lists.

BitoPro's customer service prioritizes preventing customers from being defrauded. For cases unidentifiable by the transaction monitoring system, customer service actively monitors the user's transaction patterns to check for potential fraud and assists in reporting to 165. BitoPro observed that investment fraud cases have been prevalent recently, with the risk control system automatically blocking a suspicious withdrawal last month, prompting the member to submit relevant review materials. It was discovered that the member intended to transfer funds to a fake exchange website, involving a substantial amount in the seven digits. After hours of persuasion and communication, the member successfully reported to 165.

Risk Control Based on User Behavior, Not Unilateral Intentions

Although many netizens believe "I have completed KYC, yet you still restrict me," industry players and investigators have found that Taiwan's cryptocurrency scams involve many dummy accounts used by fraud groups for illegal money laundering on exchanges. Exchanges, banks, and investigative agencies will require exchanges to comply with risk control measures based on the information they possess; Taiwan exchanges almost universally utilize money flow analysis systems and integrate with international blacklisted addresses. If a user's address is deemed suspicious, the risk control mechanism is triggered.

The regulatory requirements and pressures faced by compliant exchanges in fiat currency transactions, whether in terms of on-chain money flow or fiat money flow, are increasingly scrutinized. This year, the Financial Supervisory Commission conducted financial inspections on various exchanges, with ACE and Rybit exchanges being fined 1.52 million and 1.02 million Taiwanese dollars, respectively, for deficiencies in anti-money laundering measures.

Is Exchanges' Risk Control of Accounts Legal?

In MaiCoin's Terms of Use, it is stated:

"MAX Exchange reserves the right to immediately suspend, cancel, or terminate your MAX Exchange account and prohibit trading or freeze funds. If you have already started using MAX Exchange services or this website before the restriction reason is eliminated, continuing to use MAX Exchange services or this website after the restriction reason is eliminated will be deemed as acknowledging all terms of use agreed upon between you and MAX Exchange since your first access or use of MAX Exchange services and this website."

In BitoPro's Terms of Use, it is stated:

"You understand and agree that users are prohibited from using this website and the services for money laundering, financing of terrorism, commercial bribery, fraud, or any suspected illegal trading behavior. If BitoPro discovers any suspected illegal transactions as mentioned above, BitoPro may suspend, cancel, and/or terminate your BitoPro account and/or prohibit trading or freeze funds, and immediately report to law enforcement agencies, and in accordance with law enforcement agencies, financial institutions' documents for alert account joint defense mechanism notification, temporarily freeze the disputed transaction funds. In the future, you must provide the documents notified by law enforcement agencies as a basis for requesting BitoPro to unfreeze transaction funds, restore BitoPro accounts, etc. However, you also understand and agree that BitoPro may refuse your request based on the contents of these terms, internal policies, or risk control considerations."

Risk control of user assets by virtual asset exchanges is legal and in compliance with relevant laws and international anti-money laundering and counter-terrorism financing regulations as necessary measures.

In Taiwan's "Prevention of Money Laundering and Counter-Terrorism Financing Regulations for Virtual Currency Platforms and Trading Businesses", Article 4 lists conditions for refusing to establish business relationships or transactions, and exchange operators are obligated to continuously review user identities and behaviors and actively report abnormal conditions to regulatory authorities.

According to the Financial Action Task Force (FATF) and relevant international laws, virtual asset exchanges must implement customer identity verification, transaction monitoring, and asset risk control measures to prevent money laundering, terrorist financing, and other illegal activities. These regulations not only apply to traditional financial institutions but also to virtual asset exchanges.

Risk Control Does Not Constitute Embezzlement

Asset freezing is carried out in accordance with legal and regulatory requirements: The act of freezing assets by virtual asset exchanges is typically carried out in accordance with legal requirements and regulatory standards, especially to prevent money laundering, terrorist financing, or other illegal activities. Therefore, these measures are compliant operations, part of the exchange's fulfillment of legal obligations, and not subjective intent to misappropriate others' property.

Possible Reasons for Users Being Subject to Risk Control by Taiwanese Exchanges

Customers of virtual asset exchanges may have their accounts restricted for the following reasons:

1. Significant changes in customer identity information or background: When there are significant changes in customer identity or background information, exchanges need to reconfirm the customer's identity. If confirmation is not possible or the information does not match, account operations may be restricted.

2. Suspected involvement in money laundering or terrorist financing transactions: If an exchange suspects the authenticity of customer information or detects customer involvement in money laundering or terrorist financing transactions, enhanced scrutiny is necessary, potentially leading to account activity suspension or restrictions.

3. Customers originating from high-risk countries or regions: If customers come from countries or regions identified as high-risk by international anti-money laundering organizations, exchanges will implement enhanced review measures. Failure to obtain necessary information may result in account restrictions.

4. Transactions or account operations not aligning with normal patterns: When a customer's transactions or account activities show significant deviations from their business characteristics, exchanges must conduct further reviews and restrictions.

5. Lack of necessary information for virtual currency transfers: If essential information (such as name, wallet information, etc.) for the sender or recipient of virtual currency is not provided, exchanges must refuse or suspend virtual currency transfers, thereby restricting related accounts.

6. Non-compliance with enhanced measures for high-risk customers: For high-risk customers, exchanges need to implement enhanced ongoing monitoring measures, including obtaining senior management approval and understanding the source of funds. Failure to comply with these measures may result in account operation restrictions.

These regulations ensure that virtual asset exchanges appropriately manage the risks associated with customers, preventing money laundering, terrorist financing, and other illegal activities.

Reference Levels of MaiCoin, BitoPro, and ACE Cryptocurrency Liquidity

Some netizens believe that exchanges such as MaiCoin, BitoPro, and ACE have not continuously provided Proof of Reserves (PoR). Although they have trust guarantees for fiat currency security, they cannot guarantee the security of encrypted assets, potentially leading to asset misappropriation. Due to entity size issues, exchanges may use risk control reasons to maintain asset liquidity. Perhaps the Arkham online data platform can be used to understand the liquidity of different exchange treasuries.

• BitoPro 46.49 million reserves/BitoEX no data
• MAX Exchange 9.99 million reserves/MaiCoin 28.90 million reserves
• ACE Approximately 700,000 Bitcoin reserves

Based on the risk control amounts discussed online and the funding volumes of each platform mentioned above, it is unlikely that "illegal risk control" is being conducted for certain money flows.

Recruiting OTC in the Wilderness, the Future Compliance Direction of Taiwanese Exchanges

As Taiwanese fiat currency exchanges can only engage in spot trading, profit from transaction fees, or provide debt management to create profit margins, the closure of FTX exchange due to asset misappropriation and the upcoming regulatory enforcement of Virtual Asset Service Providers (VASP) in Taiwan have led to strengthened financial inspections and increased regulatory burdens on industry players. VASP associations are actively formulating more regulations, and the burden on VASP operators is becoming heavier.

Due to the difficulty of implementing anti-money laundering measures in unregulated over-the-counter (OTC) trading platforms, many OTC operators are changing ownership or exiting under compliance pressure. This brings users to exchanges and adds more pressure for anti-money laundering measures. Despite the continuous occurrence of social incidents, Taiwan's prevalent use of cryptocurrencies for laundering illegal incomes, how exchanges can balance user experience and regulatory requirements will be a significant challenge.

The Special Act on Virtual Asset Management is imminent: the Financial Supervisory Commission has announced a four-stage management plan and will submit it to the Executive Yuan in June 2025.