FSC Issues Crypto Currency Guidelines: Stronger Disclosure and Asset Segregation

Last updated: 26 Sep, 2023

On the 26th, Taiwan’s Financial Supervisory Commission (FSC) officially released its Crypto Currency Guidelines, which include ten key items such as requiring businesses to establish review mechanisms for listing and delisting crypto assets. Once an industry association for crypto currency is established, it will formulate self-regulatory rules based on the FSC’s guidelines to strengthen industry self-discipline and consumer protection.

In March this year, the Executive Yuan designated the FSC as the competent authority for crypto assets with investment or payment characteristics. The FSC set a gradual, phased approach to supervision—issuing guidelines in Q3 and promoting industry self-regulation first, with a future dedicated law not ruled out.

The FSC’s guidelines cover the following 10 key points:

1. White paper disclosure: If a crypto asset issuer sells tokens via a platform, the issuer must publish a white paper and certain specified information on its website; the platform must also post a link to the issuer’s site.

2. Listing/delisting standards: crypto asset businesses must set review standards for asset listings and delistings and incorporate them into internal controls.

3. Asset segregation: A platform’s proprietary assets must be kept separate from client assets.

4. Trading rules: Platforms must establish and publish trading rules to ensure fairness and transparency.

5. Customer protection: Strengthen contract terms, advertising/solicitation practices, and complaints handling; platforms must implement customer protection.

6. Operational resilience & security: Platforms must establish management systems for business continuity, information security, and private key management for hot/cold wallets.

7. Information disclosure: For issuance, listing/delisting, and segregated custody, platforms must ensure adequate disclosures.

8. Internal control/audit: Platforms must build internal control and internal audit systems and agree to on-site inspections by the FSC or its appointed bodies.

9. AML statements by individuals: Natural persons engaging in crypto asset business and filing AML/CFT compliance statements to the FSC must ensure their statements’ content and quality are on par with those of corporate entities.

10. Ban on illegal solicitation by offshore platforms: Offshore crypto asset platforms that have not registered under the Company Act and not filed AML/CFT compliance statements with the FSC may not solicit business within Taiwan or from Taiwan residents.

Notably, the guidelines specify that for client assets under custody, crypto asset businesses must engage a CPA at least annually to issue a report. The report type is not limited to an audit or assurance; an agreed-upon procedures report is acceptable.

This flexibility reflects anticipated challenges for businesses and CPAs in the initial stage. The FSC will allow CPAs to carry out agreed-upon procedures under the association’s self-regulatory rules and related guidance, helping firms gradually strengthen internal controls. Once controls are more robust, the FSC may adopt tiered management based on transaction scale, and could then require a certain level of assurance or an audit opinion.

As there is currently no dedicated crypto currency law, the legal basis the FSC can use to take administrative action against crypto asset businesses is the “Regulations Governing Anti-Money Laundering and Countering the Financing of Terrorism for crypto Asset Platform and Transaction Business” issued in June 2021, with fines ranging from NTD 500,000 to NTD 10 million.

Gao Ching-ping, Deputy Director-General of the FSC’s Securities and Futures Bureau, acknowledged that violations of the guidelines will not always fall under the AML/CFT regulations for penalties; it will depend on the circumstances of each case. The FSC will first emphasize industry self-discipline to build customer trust and support long-term operations, and will adjust supervisory intensity step by step as the industry develops.

Democratic Progressive Party legislator Kuo Kuo-wen had previously proposed differentiated supervision by business size. Gao stated that the Ministry of Economic Affairs is moving to add a new business category for “cryptol currency commerce.” Once announced, businesses can apply to establish an industry association for crypto currency. The association will then set self-regulatory rules based on the FSC guidelines, and may adopt size-based accommodations. The FSC will fully consult with the association going forward.

According to FSC statistics, 25 crypto asset businesses have completed AML/CFT compliance statements, and another 30 have submitted filings that are under review.