FSC Latest | Key Points to Know in the Anti-Money Laundering Draft for Virtual Currency Platforms

The Financial Supervisory Commission (FSC) of Taiwan has released an updated version of the draft "Regulations for Anti-Money Laundering and Counter-Terrorist Financing for Virtual Currency Platforms and Trading Businesses" after discussions with industry players and relevant public sectors. The updated version was made public on the 25th and is now open for a 14-day public consultation period, with the official implementation scheduled for July 1st this year.

For background information, please refer to the following reports:

Discussion with industry players on the draft version: "FSC Gathers Eight Taiwanese Virtual Currency Businesses to Discuss Anti-Money Laundering Draft - What is it?"

Scholar comments on the initial draft: "Interview with Professor Yang Yueping | How to Comment on Taiwan's Anti-Money Laundering Regulations Draft for Virtual Currency Platforms?"

Key points clarification!!

1. Do wallet providers, OTC merchants, and other non-exchange entities also need to comply with KYC?

According to reports, the initial draft discussed with industry players has a broad scope in regulating anti-money laundering activities. Entities engaged in the following activities for others are considered as service providers:

• Exchanging virtual currency with New Taiwan Dollar, foreign currencies, or currencies issued in Mainland China, Hong Kong, or Macau.
• Exchanging virtual currencies.
• Transferring virtual currencies.
• Storing, managing virtual currencies, or providing related management tools.
• Participating in and providing financial services related to the issuance or sale of virtual currencies.

These activities are not limited to exchanges; they also include decentralized exchanges, wallet providers, OTC merchants, cryptocurrency asset management companies, custodians, and cryptocurrency issuers, all falling under the category of VASP (Virtual Asset Service Providers). Their activities are essentially considered as "virtual currency platform and trading businesses," hence they may be subject to high compliance costs, such as KYC requirements.

However, the 25th version of the published document provides an explanation regarding the scope of regulation for "4. Storing, managing virtual currencies, or providing related management tools." That is, "providing related management tools refers to those who store private keys for customers." Therefore, wallet providers who do not store private keys for customers are not within the scope of this regulation.

2. Which entities should be regulated? Are overseas exchanges included?

The second article clarifies: "The term 'this business' in the preceding paragraph is limited to those registered domestically." In other words, relevant businesses established within Taiwan are within the scope of regulation.

However, exchanges usually have parent companies established overseas, and the definition of how to classify cases where a branch is established domestically is still pending clarification.

3. Do all activities of entities within the regulated scope need to comply with KYC?

The answer is yes, with implementation based on certain monetary thresholds. Customer identity verification is required for transactions involving an equivalent of NT$30,000 or more, as stated in Article 3: "Handling temporary transactions equal to or exceeding NT$30,000 or multiple temporary transactions with apparent connections totaling NT$30,000 or more."

For most cryptocurrency users, reaching this threshold should not be difficult, and it may have an impact on relevant entities.

The personal customer identity information defined by the FSC includes:

(1) Name.
(2) Official identification document number.
(3) Date of birth.
(4) Nationality.
(5) Registered or residential address.

4. Will the Travel Rule, causing chaos for entities, be implemented?

Let's clarify: "The Travel Rule has a separate implementation date." Please refer to "Article 18: Except for Article 7, for which the date of implementation will be determined by the FSC, this regulation will be effective from July 1, 2021."

For now, entities "do not need" to obtain and record KYC information for user fund destinations or external addresses transferring funds to user accounts.

Commentary: Adjustments may still occur before the July implementation

According to an interview in early May with Professor Yang Yueping, the FATF's revised anti-money laundering guidelines for virtual currency businesses are still in the public comment period, and the final version of the guidelines is expected to be announced in June 2021. Taiwan's legislative amendments should align with this timeline to achieve comprehensive compliance; otherwise, subsequent adjustments may still be necessary.