Exclusive Content | The FSC gathers eight virtual currency operators in Taiwan to discuss the Anti-Money Laundering draft proposal.

The Financial Supervisory Commission (FSC) of Taiwan will convene a meeting on May 7 to discuss the draft of "Anti-Money Laundering Regulations for Virtual Currency Platforms." It is reported that the meeting will focus on the anti-money laundering regulations for Virtual Asset Service Providers (VASPs) as outlined by the Financial Action Task Force (FATF). What are the specific topics to be discussed?

Eight Virtual Currency Operators Attend

Eight operators in Taiwan were invited to attend: Ace Digital Innovations (Ace), BitoEx Technology from the British Virgin Islands (BitoEx/BitoPro), Modern Wealth Technology (Maicoin/MAX), Sivida Innovative Technology (StarBit), Consensus Technology from Seychelles (Joyso), Statecraft Technology Information (Statecraft), Asia Pacific Yiant Technology (BitAsset), and Shubao (Subo).

In addition, the Ministry of Justice, Investigation Bureau, and the Taiwan Blockchain Alliance will also attend.

Prevention of Money Laundering Measures for Virtual Currency Platforms: Implementation of Travel Rule?

The full name of the draft is "Prevention of Money Laundering and Counter-Terrorist Financing Measures for Virtual Currency Platforms and Trading Businesses," and its length is justifiable. The scope of anti-money laundering for virtual currency should not only cover exchanges.

After designating the Financial Supervisory Commission as the competent authority in 2018, the Executive Yuan further specified the scope of anti-money laundering activities on April 7 this year:

• Exchange between virtual currency and New Taiwan Dollar, foreign currencies
• Trading between cryptocurrencies
• Transfer of virtual currencies
• Custody of virtual currencies or asset management tool providers must be regulated
• Regulation on ICO, IEO issuance or sale

These activities are not limited to exchanges only, but also include decentralized exchanges, wallet providers, OTC traders, cryptocurrency asset management companies, custodians, cryptocurrency issuers, etc., all fall under the category of VASP (Virtual Asset Service Providers), and what they do basically falls under "virtual currency platforms and trading businesses."

The draft contains a total of 18 articles, including legal basis, scope of virtual currency business, KYC customer identity verification, record keeping, reporting of high-value transactions, among others, with the KYC part being what current centralized virtual currency exchanges in Taiwan are already implementing in their anti-money laundering policies.

However, internationally, wallet providers, decentralized exchanges, OTC traders, cryptocurrency asset management companies, DeFi platforms, which generally do not have a complete KYC mechanism established, may have to incur certain costs to comply with these regulations.

The key is in Article 7, the regulation of a "similar" Travel Rule, which is also not widely implemented for VASPs in the United States at present.

When Users Transfer Virtual Currencies, Senders Must Record Recipient Information

According to Article 7 of the draft, when VASPs provide users with services to transfer virtual currencies, they must obtain information about the sender and the recipient of the virtual currency for regulatory and investigative purposes.

For example, if "A" opens an account with Exchange A in Taiwan and passes KYC verification. When A wants to transfer bitcoins from Exchange A to Mr. "E" of "Sangbi Notes," Exchange A must not only have the existing data but also record Mr. E's name and wallet address. Otherwise, VASP cannot process the transfer to "Sangbi Notes."

If VASP is the recipient, they also have a responsibility. The recipient must take appropriate measures to obtain necessary information about the sender.

The article states: "If the business acts as the recipient of the virtual currency transfer, it shall take appropriate measures to identify virtual currency transfers that lack necessary information." This means that as the recipient, you are obligated to establish certain mechanisms to identify the sender of the transferred coins.

How to Obtain Information on Anonymous Wallets and DeFi Protocols?

The "Travel Rule" requiring KYC for both senders and recipients is being reevaluated in the United States since Biden took office.

The related draft in Taiwan is still in the discussion stage. If implemented, it should not have a significant impact on the direct transfer of cryptocurrencies between VASPs, but the compliance costs for VASPs may increase, leading to a loss of users resistant to KYC.

However, VASPs may face challenges in obtaining information about external anonymous wallets and complying with DeFi protocols. They may refuse unknown transactions, creating barriers to user experience. The suggestion in the draft to "take appropriate measures" may also prompt operators to establish a trusted shared database to identify necessary information for DeFi protocols and specific individual wallets to meet the requirements similar to the Travel Rule.

At a time when the United States is reconsidering and the world is watching, the explicit implementation of strict Travel Rules may imply that policies are excluding new entrants or focusing more on the privacy of existing users. In the current global regulatory inconsistency, it is possible that users may be pushed to overseas platforms.