Time: 2022/8/29 02:00-04:00PM
Venue: IEAT International Conference Center Meeting 8F Room 2
Professor Yang analyzed the different regulatory frameworks for digital assets in various countries from three perspectives: issuance, transaction, and the industry. In terms of issuance, one of the determining factors is whether issuing the assets requires financial investment. Bitcoin is deemed as digital assets for the fact that it is issued through mining instead of investment. When investments are involved in digital assets, it can be further classified into two categories:
- Promising capital return/surplus allocation
- Promising exchanging specified goods and services or exchanging specified assets/rights in a limited timeframe.
The first category, also known as Securities Token Offering (STO), encompasses stronger financial traits and requires stronger regulations. The second category is similar to coupons. For example, Non-fungible tokens (NFTs) belong to this category, and the regulatory focus here will be more about protecting the investors.
In terms of the regulatory framework for digital assets, some countries (U.S. and U.K.) simply apply existing financial regulations, while some (Thailand, Malaysia, and E.U.) choose to develop new regulations tailored to the new products and services. China is another example that bans issuing digital assets overall to prevent any related legal problems.
What the regulators care about the most is the regulation of digital assets transactions. Crimes such as fraud, market manipulation, and insider trading can cripple the market, cause investor losses, and potentially produce political pressure. Some members of Congress in Taiwan have been raising concerns regarding this issue. The regulatory model for the aforementioned crimes can also be divided into two categories: applicable, existing regulations and special regulations. Existing regulations can be Securities and Exchange Act and Future Trading Act in Taiwan, for example. On the other hand, the European Union’s regulations for non-securities digital assets include rules against market manipulation and insiders transactions.
The industry of digital assets includes trading platforms and E-wallet service providers. Internationally, new regulations on customer assets and trading platforms are also emerging. New York was the first to issue licenses for companies managing client assets; Japan and Singapore are also developing similar regulations.
Overall, the global scene of financial regulation is becoming more and more diverse. On the other hand, Taiwan has been addressing these innovations using the same old model. Prof. Yang suggested several directions for Taiwan’s regulatory framework development in the short, medium, and long term. In the short term, he suggested loosening up the strict regulations on security tokens and expanding their applicability. Moreover, special exchange regulations could be introduced for the issuance of stablecoins, as regulating stablecoins is unavoidable. Taiwan’s relatively loose regulation on trading may also be a concern. The quick solution is to apply the futures trading law to regulate the trading of a wider range of digital asset. This can be done through legal interpretation without the need to amend the law. The same can apply to the regulation of the industry. In the long run, Yang recommended developing tailored regulations.
Prosecutor Lee looked at digital assets from the perspective of crime detection. He described several potentially illegal virtual currency applications, including non-custodial wallets, smart contract abuse, and NFT abuse. He believed that virtual currencies need to be regulated. However, according to the “Regulations Governing Anti-Money Laundering and Countering the Financing of Terrorism for Enterprises Handling Virtual Currency Platform or Transaction, “enterprises subject to regulation are limited to legal persons registered in Taiwan, legal persons not registered in Taiwan and natural persons are not within the scope.
Prosecutor Lee pointed out that implementation is not easy. Authorities often lack resources, and many service providers are not registered in Taiwan. Even if all providers are registered in Taiwan, it would be impossible to inspect each of them due to the lack of workforce and capacity of the Financial Supervisory Commission (FSC). He suggested that the regulation should include all virtual asset service providers. The authority should develop a sub-law requiring operators to issue a statement for future reference and publicize the list. The third-party payment model, which requires these operators to register in Taiwan after the payment flow in Taiwan reaches specific numbers, is another potential model. This way, the providers will be under FSC’s supervision with clear operation rules.
Representing the industry, Eugene Lim first referenced the principle of Biden’s Executive Order On Ensuring Responsible Development Of Digital Assets: same business, same risks, same rules. Taking his company as an example, Lim explained that to provide services in different countries, they had to apply for licenses from different governments according to each country’s national regulations. He emphasized the diversity of digital assets and was optimistic about Taiwan’s asset management potential. He observed that Taiwan’s financial regulatory system is difficult for start-ups on digital financial services and products. Many Taiwanese choose to set up companies abroad with their innovations, and Taiwanese also prefer to invest overseas. The industry anticipates that the Taiwanese government will refrain from regulating digital assets with the traditional regulatory model. He believed Taiwan could combine the country’s financial and technological advantages to evolve the digital asset industry. He also suggested that the authority could loosen up on the regulations of domestic weak digital currencies to create more options for Taiwanese investors.
Question: Will Biden’s executive order have any special impact on US-Taiwan relations?
Professor Yang believes that there will be no significant impact. The legislative process and context of the United States are very different from Taiwan. The regulation of securities, stablecoins and money laundering preventive rules in U.S.’s Executive Order are worth learning. Prosecutor Li added that in terms of regulating money laundry, Taiwan mostly learns from Europe and Singapore.
Question: What is the impact of Biden’s executive order on Singapore?
As a Singaporean, Eugene said that the six principal policy objectives of Biden’s Executive Order all focused on the United States only. However, the power of the U.S. dollar can still potentially affect other countries. Singapore has not been affected by the U.S. executive order. The country is also more advanced in terms of regulations. Lim also pointed to a potential contradiction worth noting for Taiwanese, which was the Standard for Automatic Exchange of Financial Account Information in Tax Matters (Common Reporting Standards, CRS). Taiwan has yet signed CRS with any country and this could be exploited by offenders.
Question: any suggestions for enhancing Taiwan’s regulations in the face of the trend of digital assets?
Reflecting on Lim’s experience, Prof. Yang noted that Taiwanese companies cannot obtain licenses for digital asset operation, which also leads to regulatory issues cannot be solved by money laundering prevention regulations. This could be because categories of domestic financial businesses are relatively few; difficulty in obtaining licenses (capital thresholds and conservative operating restrictions) also affects the willingness of operators to obtain licenses.
Prosecutor Lee also believed the lack of licenses is a pain point for these virtual asset operators, and the Financial Supervisory Commission also does not view virtual asset operators as financial operators. Understanding that FSC’s focus is consumer protection, one possible solution could be starting from a narrower supervision scope.
Question: what is Central Bank’s role in digital assets?
Professor Yang: the central bank mainly deals with monetary policy. The Central Bank of Taiwan is currently developing and experimenting with its own digital currency, but large-scale application will not be possible in the short term. He also believes that the central bank will have to deal with stablecoins in the nearest future as they have become common payment methods.
Prosecutor Lee: online transactions are ubiquitous in Taiwan with diverse payment methods. However, the additional fees are burdensome for either consumers or vendors. A digital currency issued by the central bank would seem to be the simplest payment method, but privacy issues still need to be addressed.
Eugene: Singapore aims to become the asset management center in Asia, and digital assets are no exception. Therefore, Singapore is relatively flexible and open regarding digital asset management licenses. However, the regulatory authority in Singapore remains conservative. There were several incidents this June that prompted investigations from the Singapore Regulatory Authority.