Exchanges Expose FSC Regulatory Draft Meeting: Banks Generally Unfriendly, Expected to Form Association After September

The co-founder of Taiwan's currency exchange BitShine, Chen Peiyun, revealed the content of the Financial Supervisory Commission (FSC) meeting involving various Taiwanese industry participants. In addition to the known guidance principles announced in September, the meeting addressed the actual challenges raised by virtual currency industry players.

Background Information 1: The FSC has become the main regulatory authority for virtual assets! It does not set regulations for non-licensed industries and relies on "associations" for self-regulation.

Taiwanese cryptocurrency exchange BitShine Coin Idea: Taiwanese banks are unfriendly to crypto industry

Chen Peiyun, co-founder of Taiwanese cryptocurrency exchange BitShine, stated that during a VASP (Virtual Asset Service Provider) guidance seminar, up to 70% of entities that have passed anti-money laundering declarations reported being treated unfriendly by banks. They were asked to close accounts and even immediately repay corporate loans.

Unfriendly banks targeting OTC traders?

According to the investigation, there are currently 25 virtual currency entities that have passed the Anti-Money Laundering Declaration by the Financial Supervisory Commission. Among them, only a few fiat exchanges have order books/market makers, while most are currency exchanges involved in over-the-counter (OTC) trading.

According to the report from the "Bitcoin and Virtual Currency Development Association," existing fiat exchanges/currency exchanges have already cooperated with banks for asset custody, with only two banks cooperating: KGI Bank and Far Eastern International Bank. Therefore, it is likely that OTC currency traders are the main ones facing unfriendly treatment from banks.

Financial Supervisory Commission has not accepted new entities for six months

The Financial Supervisory Commission, responsible for handling the anti-money laundering declarations of virtual currency entities, has maintained the number at 25 for the past six months, without adding new entities, despite providing application guidelines for the Financial Supervisory Commission's Anti-Money Laundering Declaration. In May of this year, Lin Hongyu, chairman of the "Bitcoin and Virtual Currency Development Association," led 19 entities to inquire about the progress of their applications with the Financial Supervisory Commission, but everything is still under review.

Should banks be crypto-friendly?

According to the "Template for Preventing Money Laundering and Combating the Financing of Terrorism by Banks" from the Banking Bureau, banks must comply with 27 pages of anti-money laundering regulations, including:

1. Confirming customer identity.
2. Verifying the names of customers and related parties to transactions.
3. Continuous monitoring of accounts and transactions.
4. Handling cross-border bank business.
5. Record keeping.
6. Reporting currency transactions above a certain amount.
7. Reporting suspected money laundering or terrorist financing transactions and notifying in accordance with the Anti-Money Laundering and Combating the Financing of Terrorism Act.
8. Designating a manager responsible for compliance with anti-money laundering and combating the financing of terrorism.
9. Employee selection and appointment procedures.
10. Continuous employee training programs.
11. Independent audit function to test the effectiveness of anti-money laundering and combating the financing of terrorism systems.
12. Other matters stipulated by relevant laws and regulations on anti-money laundering and combating the financing of terrorism.

If banks were to serve entities related to cryptocurrency while meeting the above conditions, most banks would likely choose to keep their distance.

Financial Supervisory Commission targets individual currency traders: Failure to pass the anti-money laundering declaration will result in fines

Chen Peiyun, co-founder of Taiwanese cryptocurrency exchange BitShine, mentioned that the Financial Supervisory Commission stated that individual or corporate currency traders who fail to pass the anti-money laundering declaration will face fines ranging from 500,000 to 10 million New Taiwan Dollars.

The Financial Supervisory Commission responded to individual currency traders in June

In June of this year, the Financial Supervisory Commission had already declared individual currency traders as illegal; even earlier in 2021, the Banking Bureau had issued warnings to entities that had not submitted the anti-money laundering declaration.

Background information 2: Prosecutors demand supervision of individual currency traders! Financial Supervisory Commission responds: Entities without anti-money laundering declarations are illegal

According to the investigation, the fines ranging from 500,000 to 10 million New Taiwan Dollars are likely derived from Article 6 of the Anti-Money Laundering Act for not establishing anti-money laundering regulations:

Guidelines in September, self-regulatory rules released, establishment of an association in sight

Chen Peiyun, co-founder of Taiwanese cryptocurrency exchange BitShine, stated that after the guidelines were issued in September, an industry association will be established.

Establishment of the association is still under discussion, no legal category yet

According to the current approach of the Financial Supervisory Commission, the development and regulation of the virtual asset industry in Taiwan mainly rely on the future establishment of an "association" to mutually constrain in a self-regulatory manner.

Taiwanese virtual currency entities already have a draft of self-regulatory rules, which will be implemented after the guidelines are announced in September. As for the establishment of the association, it is still in the discussion stage. According to the Commercial Association Law, there is no category for virtual currency entities among various commercial associations, awaiting legal adjustments.

Others: Landing of overseas exchanges, bank trust

Chen Peiyun, co-founder of Taiwanese cryptocurrency exchange BitShine, also mentioned that overseas exchanges are considering landing in Taiwan through anti-money laundering declarations and requiring exchanges to have bank trust or performance guarantees.

Anti-money laundering declarations for Taiwanese registered companies, stricter bank trust requirements?

It is understood that anti-money laundering declarations are currently limited to Taiwanese registered companies. After the guidelines and self-regulatory agreements are announced in September, any VASP registered in Taiwan will be eligible to join the anti-money laundering declaration list.

In addition, regarding bank trust, it is rumored that the Banking Bureau is also considering restricting bank accounts for VASP users dealing with VASPs to be the same as the custodian bank of that entity. If implemented, this may further limit the business expansion capabilities of VASPs; this move may also increase the burden on custodian banks. Without more large banks willing to provide services to VASP entities, it may significantly increase single-point risks.