Taiwan's Anti-Money Laundering Draft | KuCoin's Viewpoint: Deploying Compliance Services Ahead of Detailed Implementation

The Financial Supervisory Commission of Taiwan has released the latest version of the "Virtual Currency Platform and Trading Business Anti-Money Laundering and Counter-Terrorist Financing Measures" draft on the 25th, which has entered a 14-day public consultation period. It is expected to be officially implemented on July 1st of this year. After defining the scope of regulated activities, which includes exchanges that have long been implementing KYC customer identity verification, other non-exchange virtual currency operators may also need to adopt relevant anti-money laundering policies.

For example, the draft specifies that those who "store, manage virtual currency, or provide related management tools, meaning those who store private keys for clients," fall within the regulatory scope. This primarily impacts "wallet providers." How does CoolBitX, a Taiwan-based hardware wallet provider, view this draft?

KuCoin's Perspective: What Impact Does the Draft Bring?

1. Regulation of Virtual Currency to Fiat Exchange: More Impact on OTC Operators

KuCoin Technology stated that all conversions between virtual currency and fiat currency are regulated here. Operators providing such services, such as fiat currency deposit and withdrawal services, OTC services, etc., are classified as virtual currency operators and therefore need to establish a complete AML and KYC process (referred to as AML/KYC below).

Regarding this point, major exchanges have already implemented AML/KYC for fiat currency transactions and have also been certified by accounting firms and submitted to partner banks. The impact here should not be too wide. However, for OTC businesses or similar operations, it is uncertain whether they follow the same practices as exchanges in implementing AML/KYC and obtaining accountant certification, which still requires further observation.

2. Regulation of Coin-to-Coin Exchange: KYC Has Become a Necessary Condition

KuCoin Technology stated that the most well-known virtual currency service, coin-to-coin exchange, commonly found in the basic member trading functions of exchanges, used to be accessible with just an email registration.

However, this circular directly points out that providing exchanges between virtual currencies also falls under virtual currency operators. This signifies that the era of being able to trade with just an email registration is over. Moving forward, any exchange involving virtual currencies must implement AML/KYC and should be covered by the aforementioned circular.

3. Regulation of Virtual Currency Transfer Services: Involving a Wide Range of Operators

KuCoin Technology stated that the transfer of virtual currencies between different addresses falls within this category, which includes a wide range of entities, such as those that specialize in virtual currency transfers or decentralized exchanges, all of which would be categorized as virtual currency operators.

4. Participation in and Provision of Virtual Currency Issuance or Sales: Including Debts, Funds, and More

KuCoin Technology mentioned that this refers to virtual currency issuance, typically referring to ICOs, IEOs, etc. As for the "related financial services" mentioned later, it includes services commonly seen in the virtual currency market, such as futures contracts, debt lending, virtual currency funds, similar to traditional financial services, which should also be included.

KuCoin's Perspective: Non-Custodial Key Wallet Providers Exempted from Regulation

Prior to the release of the draft on the 25th, there was discussion regarding whether non-custodial key management tool providers, such as cold wallet providers, should be regulated, with the decision ultimately being that they are not within the scope of regulation.

KuCoin Technology stated that non-custodial wallets are like safes, merely tools for storing virtual currencies. When a user obtains a non-custodial wallet, the provider does not have access to the wallet's private key (similar to the combination of a safe), and even if the non-custodial wallet is transferred by the user to someone else for use, the provider cannot know who has obtained the wallet.

If we refer to the relevant regulations of the FATF, "Safekeeping and/or administration of virtual assets or instrument enabling control over virtual assets," interpreted literally, it seems that those who have "control" or "management" over virtual assets on storage devices or services are considered virtual currency operators and can conduct AML/KYC on the holders.

Non-custodial wallet providers do not actually control the user's private key, and they do not have control over the user's virtual currency or tools, making it difficult to expect wallet providers to identify users and further conduct KYC/AML when users use cold wallets. Therefore, management through banks or exchanges has practical significance and potential.