Interview with Professor Yang Yueping | How do you initially comment on the draft regulations for anti-money laundering on virtual currency platforms in Taiwan?

The Financial Supervisory Commission of Taiwan will hold a meeting on May 7 to discuss the draft regulations on "Prevention of Money Laundering and Counter-Terrorist Financing for Virtual Currency Platforms and Trading Businesses."

We conducted an exclusive interview with Assistant Professor Yang Yueping from the Department of Law at National Taiwan University to hear his preliminary comments on this legislation.

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Summary of Comments by Professor Yang Yueping

Due to the extensive professional content, the summary is as follows:

• When Taiwan sets regulatory norms for anti-money laundering (AML) in virtual currency businesses, it should adhere to the guidelines set by the Financial Action Task Force (FATF) unless there are specific national needs that require different regulations.
• Currently, the FATF's revised guidelines for AML in virtual currency businesses are still in the public consultation period, and the final version is expected to be announced in June 2021. Taiwan's legislative amendments should align with this timeline to seek comprehensive compliance; otherwise, subsequent adjustments may still be necessary.
• The FATF guidelines suggest that countries should introduce a licensing or registration mechanism for virtual currency businesses. However, Taiwan has only defined the scope of virtual currency businesses and has yet to introduce a licensing or registration mechanism, which would help legitimize and regulate the industry.
• The description in the draft regarding businesses that "store, manage virtual currency, or provide related management tools" slightly differs from the FATF's description, potentially extending the regulatory scope to include businesses that provide non-custodial wallets. Further clarification is needed.
• The draft does not clearly specify its jurisdictional rules. It is recommended to use not only the "registration location" of virtual currency businesses but also consider the customers' location as a basis for regulation.

Below is the original text by Professor Yang:

Comment One: Establishing Regulatory Principles in Taiwan for AML in Virtual Currency Businesses

• In addressing AML issues in virtual currency businesses, the FATF has long provided comprehensive guidelines and explanations, serving as a global reference standard.
• To comply with international standards, when Taiwan formulates regulations on AML in virtual currency businesses, it is recommended to adhere to the aforementioned FATF standards, unless specific AML issues unique to Taiwan require a different regulatory model.

Comment Two: Carefully Considering the Timing for Implementing Relevant Regulations in Taiwan

• In June 2019, the FATF published the "Guidance for a Risk-Based Approach: Virtual Assets and Virtual Asset Service Providers," detailing the principles that AML regulations in virtual currency businesses should follow. Subsequently, in June 2020, a review report was issued, followed by a draft of revised guidelines in March 2021 for public comment, with the final revised version expected in June 2021.
• Given the ongoing revision of FATF guidelines, Taiwan's implementation of AML regulations in virtual currency businesses should ideally align with the revised timeline. It is recommended to slightly postpone the regulations until after the announcement of the revised FATF guidelines to ensure full compliance, or at least retain flexibility for future adjustments in response to the revised guidelines.

Comment Three: Introducing a Licensing or Registration Mechanism for Virtual Currency Businesses in Taiwan

• Both in the 2019 guidelines and the 2021 draft guidelines, the FATF emphasizes that countries should designate one or more regulatory authorities responsible for licensing or registration of virtual currency businesses. This aims to establish minimum qualification requirements for virtual currency businesses and ensure compliance with relevant regulations, effectively implementing AML measures.
• Introducing a licensing or registration mechanism helps various types of virtual currency businesses determine their compliance with AML regulations, thereby enhancing the legal certainty of their operations. It also allows law-abiding businesses to distinguish themselves from those intending to operate unlawfully, promoting overall market integrity. Additionally, it assists regulatory authorities in identifying enforcement targets and helps businesses establish relevant information reporting mechanisms.
• While the current draft provides detailed definitions for virtual currency businesses, it has not yet introduced the aforementioned licensing or registration mechanism. Considering that general virtual currency businesses are not currently required to be licensed and there are no specific industries for registration, it is suggested that the draft should refer to the FATF guidelines and introduce a licensing or registration mechanism for virtual currency businesses.

Comment Four: Clarifying the Regulatory Scope of Virtual Currency Businesses in Taiwan

• The FATF guidelines provide clear definitions for virtual currency businesses subject to AML requirements. The draft's Article 2, Paragraph 1, inherits the specified types of virtual currency businesses from the Executive Yuan's directive, which aligns with the FATF guidelines.
• Of note is the discrepancy in the description of the fourth item: "Safekeeping, and/or administration of virtual assets or instruments enabling control over virtual assets," between the FATF and the draft. The FATF's description translates to "safekeeping or managing virtual assets or tools enabling control over virtual assets," which limits the scope to businesses that store or manage virtual currency-related tools. However, the draft expands this to include businesses that "provide" related management tools, potentially broadening the scope.
• This difference may impact "non-custodial wallet providers," who only offer wallet software but do not hold users' private keys. These providers may now fall under AML regulations due to the draft's inclusion of businesses that "provide related management tools." Is this the intention of the draft? Is it necessary to include such providers in AML regulations? If included, how would these businesses meet obligations such as record-keeping for AML compliance? Further clarification is recommended.

Comment Five: Clarifying Taiwan's Jurisdictional Rules in Response to the Cross-Border Nature of Virtual Currency Businesses

• Considering the cross-border nature of virtual currency businesses, the FATF provides principled recommendations on how countries should define their jurisdictional scope. The basic principle is that the "creation location" of virtual currency businesses should be responsible for relevant licensing or registration, which, for legal entities, is their "incorporation" location, and for natural persons, their "place of business." This represents the minimum requirement by the FATF.
• However, the FATF also suggests that countries can further choose to include the location of the business's customers (similar to the effects location) and the location where services are provided (similar to the behavior location) as connecting factors to establish jurisdiction. When determining the effects location, the FATF mentions considering the office location, server location, specific target location of marketing activities, language of websites or mobile applications, and the location where businesses establish marketing networks.
• The current draft does not clearly define its jurisdictional rules. Considering that virtual currency businesses operating in Taiwan may not necessarily be registered in Taiwan, it is recommended that the draft should consider the FATF's suggestions to clarify its jurisdictional rules. In addition to introducing the minimum "creation location" standard, it is suggested to moderately introduce the effects location rule (e.g., when the business's revenue or customer base in Taiwan reaches a certain threshold) for a more comprehensive approach.