Overseas cryptocurrency operators "leave us at a loss"? FSC Chairman, Huang Tien-Mu responds: Regulatory challenges require cross-border cooperation

Financial Supervisory Commission (FSC) Chairman, Thomas Huang, was questioned by legislator Chiu Chih-wei at the Finance Committee on June 12th. Chairman Huang mentioned that the first stage of regulations for Virtual Asset Service Providers (VASPs) is nearing completion. He also stated that the VASP association will be established on June 13th, and the self-regulation standards will be jointly formulated by the industry and the FSC. However, will unregistered operators in Taiwan have an easier time?

Special regulations for virtual asset management are looming: FSC announces a four-stage management plan, to be submitted to the Executive Yuan in June 2025.

Regulation is limited to registered entities in Taiwan, does that mean it's okay if they don't register?

Under the current regulations, the focus is on VASP entities that are registered in Taiwan. Legislator Chiu Chih-Wei asked, "What if they are registered overseas but operate in Taiwan?"

Chairman Peng Chin-Lung stated that according to the rules, all cross-border operators should have a presence in Taiwan and comply with AML and anti-terrorism financing regulations. Overseas entities that are not registered in Taiwan pose difficulties in supervision due to the borderless nature of the internet, requiring international cooperation for handling.

Legislator Chiu Chih-Wei questioned that registered entities in Taiwan need to comply with various regulations and face sanctions for violations, while there seems to be no recourse for unregistered overseas entities.

Chairman Peng Chin-Lung acknowledged that this is indeed a supervisory challenge internationally. For example, if a Taiwanese individual buys insurance products from a U.S. website, our domestic laws cannot prohibit them. The Financial Supervisory Commission can only advise investors not to engage in such activities.

Peng Chin-Lung promised that in the special law version to be submitted to the Executive Yuan next year, they will propose reference to how other countries handle unregistered overseas entities.

FSC has penalties, but enforcement is difficult

Previously, the FSC had indicated that unregistered entities would face criminal liability, but this only applies to companies registered in Taiwan. If overseas entities are not registered in Taiwan but operate and promote in Taiwan, enforcement capabilities are limited when it comes to the actual beneficiaries. Enforcement investigations can only be carried out on employees or partners in Taiwan. However, based on past cases such as FTX, JPEX, and AAX, there have been no actual enforcement actions or penalties.

The Taiwan FSC will introduce a new regulation: Unregistered exchanges will face criminal liability, not just monetary penalties.