All four major exchanges fail in anti-money laundering checks! FSC will target six more VASPs, registration requirements will force currency operators to exit the market

According to reports, Taiwan's Virtual Asset Service Providers (VASP) are facing a new round of regulatory scrutiny. The Financial Supervisory Commission plans to conduct a special anti-money laundering inspection on multiple virtual asset operators in the fourth quarter of 2024, aiming to strengthen supervision of cryptocurrency transactions and ensure compliance with regulations as well as risk management. This upcoming inspection will target six operators, an increase from the four operators inspected last year. The four operators inspected last year all had deficiencies identified and received varying degrees of penalties.

Four Major Exchanges Found Deficiencies in Anti-Money Laundering Measures; Sanctions on Two More Exchanges to Be Announced

According to the announcement by the Financial Supervisory Commission (FSC), all four Virtual Asset Service Providers (VASPs) inspected last year were found to have deficiencies in anti-money laundering measures. Among them, ACE Exchange was fined 1.52 million New Taiwan Dollars for inadequate anti-money laundering measures, making it the highest fined entity. Rybit Exchange was fined 1.02 million New Taiwan Dollars for violating anti-money laundering and personal data protection regulations.

It is reported that the sanctions against the other two entities are expected to be announced soon.

FSC's First AML Inspection on VASPs: ACE Exchange Penalized 1.52 Million NTD for Anti-Money Laundering Deficiencies

FSC's Second AML Inspection on VASPs: Rybit Exchange Penalized 1.02 Million NTD for Anti-Money Laundering Deficiencies

FSC to Focus on Four Major VASPs in 2022

In 2022, the FSC conducted its first special inspection on virtual asset service providers, targeting four entities whose trading volume and custody of customer assets account for over 95% of the total.

These entities reportedly provide purely online trading services and also custody virtual assets for customers, offering a wide range of services with high convenience, which is why they were selected for inspection. The FSC emphasizes that these large-scale entities must have more robust anti-money laundering measures to ensure transparent and legal transactions.

Four Major Deficiencies Revealed in AML Inspections: Internal Control Mechanisms Need Strengthening

According to the results of last year's special AML inspections, these four VASP entities generally have four major issues. Firstly, they failed to properly collect data to identify and verify customer identities, allowing customers to register without thorough scrutiny. Secondly, the entities' internal rules for customer risk assessment, regular reviews, and investigation of suspicious transactions were not comprehensive enough, and in some cases, not effectively implemented. Additionally, regular reviews of high-risk customers were not conducted as required, and transaction monitoring patterns or thresholds were not set appropriately, resulting in failure to promptly investigate and handle suspicious transactions.

The inspection reports by the FSC have been submitted to the Securities and Futures Bureau, and related penalties are being gradually imposed, with two already sanctioned and one still in the administrative process, awaiting further disciplinary action.

Special AML Inspection in Q4 2024: Scope to Expand Again

In the fourth quarter of 2024, the FSC will once again conduct special AML inspections on six VASP entities. Compared to last year, two more entities have been added to the inspection list, reflecting the increasingly stringent regulatory requirements for the virtual asset market. Officials stated that among the existing 25 entities that have declared compliance, the FSC will gradually conduct comprehensive inspections on large entities to ensure that each entity has proper compliance and anti-money laundering measures in place.

FSC Previews New Regulations on "Anti-Money Laundering for Virtual Asset Services": Abolishing Anti-Money Laundering Declarations; Entities Must Register within Three Months

Registration System to Be Implemented; OTC Entities Exiting in Droves

The FSC plans to abolish the anti-money laundering compliance declarations and expects to implement a registration system next year; virtual asset service providers who have completed the anti-money laundering compliance declarations must register with the FSC within three months of the implementation of the registration system and complete registration within nine months of the implementation of these regulations. The requirements for registered entities in the future will be more stringent and detailed, such as establishing internal controls and audit systems in accordance with anti-money laundering laws, anti-terrorism financing laws, VASP registration regulations, and self-regulatory norms of the Virtual Currency Business Association. For major exchanges, this may require more comprehensive compliance and legal personnel investment, while for relatively simple OTC currency businesses, the cost of qualification will be higher, leading to reports of many entities selling or exiting the market.