Bitcoin ATMs unregulated? Central bank's stance and regulatory requirements for operators.

The Central Bank of Taiwan held its routine board meeting on the 17th of this month, discussing topics such as policy rates, inflation trends, and the impact of Western sanctions on Russia through SWIFT. Additionally, due to Taiwan's increasing focus on the cryptocurrency industry, the meeting also delved into the development status, risks, and regulatory issues of Bitcoin ATMs. This article will focus on the topic of Bitcoin ATMs and compile relevant information.

Central Bank's Views on Cryptocurrencies

According to a report by the central bank, the government in our country stated that the reason why cryptocurrencies have attracted consumer interest is mainly due to diverse promotional hype, such as media advertisements in various countries like the Super Bowl, celebrity endorsements such as Elon Musk, and the rapid accumulation of views on YouTube videos focusing on Bitcoin.

What is a BTM?

As of this month, the global market value of cryptocurrencies has reached $1.7 trillion, accounting for about 1% of the global financial assets. With the strong trend of cryptocurrencies, Bitcoin ATMs (BTMs) have emerged worldwide.

The central bank of our country explains BTM as an automated electronic service machine kiosk connected to the internet, but unlike traditional ATMs that facilitate deposits, withdrawals, and transfers through debit cards, BTMs provide exchange services between fiat currency and cryptocurrencies through a connection to cryptocurrency wallets, based on blockchain transactions.

The world's first BTM appeared in a coffee shop in downtown Vancouver, Canada, in October 2013, initially designed to promote the widespread use of Bitcoin, thus supporting only Bitcoin purchases. However, over time, about 70% of BTMs in the market can now support the exchange of multiple cryptocurrencies and come in various models.

BTM Gaining Popularity

With an increasing number of cryptocurrency holders, the number of BTMs is rapidly growing, with approximately 36,000 BTMs globally. The United States dominates with 88%, while Taiwan has 25 BTMs.

BTM as a Tool for Criminal Activities

Compared to centralized exchanges, BTMs have lower regulatory oversight and do not require KYC (know-your-customer), resulting in higher anonymity, significantly increasing the accessibility and convenience of cryptocurrencies, often leading to their misuse for money laundering. Money couriers can easily utilize BTMs to convert illicit proceeds into cryptocurrencies and subsequently launder them back into fiat currencies, avoiding the risks associated with moving large sums of money.

In addition, due to the unfamiliarity of the general public with BTM operations and cryptocurrency transfer principles, scam groups often exploit various fraud schemes such as impersonating government officials, romance scams, and lottery scams to defraud innocent individuals. The following is a common fraudulent process:

Taiwan's Regulatory Progress on BTMs

To prevent various criminal activities, countries are strengthening their oversight of BTMs. However, since Taiwan has not yet determined the regulatory authority for cryptocurrency-related businesses, only in cases involving anti-money laundering and combating the financing of terrorism, will the Financial Supervisory Commission (FSC) handle them in accordance with the "Virtual Currency Platform and Trading Business VASP Anti-Money Laundering and Combating the Financing of Terrorism Regulations" issued on July 1 last year.

After inspecting some domestic BTMs, the FSC also stated that some machines can exchange New Taiwan Dollars for cryptocurrencies into digital wallets or withdraw New Taiwan Dollars through digital wallets, falling under the operating patterns stipulated in the "VASP Anti-Money Laundering and Combating the Financing of Terrorism Regulations" and should comply with relevant regulations.

The operating patterns include the following five types:

1. Exchange between virtual currency and New Taiwan Dollars, foreign currencies, or currencies issued by mainland China, Hong Kong, or Macau
2. Exchange between virtual currencies
3. Transfer of virtual currencies
4. Custody, management of virtual currencies, or provision of related management tools
5. Participation in and provision of financial services related to the issuance or sale of virtual currencies

The main regulations include:

• Establishing customer identity verification when establishing business relationships with customers, conducting temporary transactions of equivalent to or exceeding NT$30,000, or suspected money laundering or terrorism financing transactions
• Keeping transaction records for at least 5 years
• For transactions exceeding NT$500,000 including equivalent foreign currencies and currencies issued by mainland China, Hong Kong, or Macau, operators must report to the Investigation Bureau of the Ministry of Justice within 5 business days after the transaction; report suspicious money laundering or terrorism financing transactions
• Establishing internal control and audit systems to prevent money laundering and combat terrorism financing
• Complete a declaration of compliance with anti-money laundering regulations

Conclusion by the Central Bank

In the conclusion of the report, the central bank once again reminds the public of the highly volatile nature of cryptocurrencies, emphasizing that cryptocurrencies are not currencies but highly speculative "virtual commodities." Furthermore, misleading cryptocurrency advertisements are quite common, and consumers should be cautious and aware of the risks of BTM fraud.