At a glance: cryptoassets for investment and financing in Taiwan

Cryptoassets for investment and financing

What attributes do the regulators consider in determining whether a cryptoasset is subject to regulation under the laws in your jurisdiction?

Generally, the regulators examine the nature of a cryptoasset, focusing in particular on whether the asset is a security, financial service or product.

On 30 December 2013, the Central Bank of the Republic of China (Taiwan) and the Financial Supervisory Commission (FSC) released a joint press release outlining the government’s position on bitcoin. The two authorities hold the view that bitcoin cannot currently be considered ‘legal tender’, ‘currency’ or a ‘generally accepted medium of exchange’ in Taiwan, but rather a highly speculative digital virtual commodity. In another FSC press release issued in 2014, the FSC ordered that local banks neither accept bitcoin as a payment method nor provide any other services related to bitcoin (eg, the exchange of bitcoins for fiat currency). Further, the FSC issued another press release on 4 March 2022 to make it clear that cryptoassets, including bitcoin, are not considered currencies under the current regulatory regime in Taiwan, but are considered digital virtual commodities.

Also, the generally considered core legal issue concerning virtual currencies and cryptocurrencies except bitcoin is whether the securities legislation applies – that is, whether an initial coin offering (ICO) or any other investment activities regarding virtual currencies and cryptocurrencies would be considered issuing securities under Taiwan’s current securities law regime. On 3 July 2019, the FSC officially announced the criteria for determining whether virtual currencies and cryptocurrencies characteristic of securities shall constitute ‘securities’ under Taiwan’s Securities and Exchange Act.

How are investors in cryptoassets classified and treated differently?

According to the security token offerings (STOs) regulations published by the Taipei Exchange (TPEx) under the authorisation of the FSC, only professional investors are eligible for STOs and if the professional investor is a natural person, the maximum subscription amount is NT$300,000 for each STO. Under the current regulatory regime, a natural person is generally qualified as a professional investor if he or she may provide proof of assets of at least NT$30 million and has sufficient professional knowledge and trading experience.

What rules and restrictions govern the conduct of, and investment in, initial coin offerings (ICOs)?

In 2017, the FSC, in response to the rising size of ICOs and other investment activities regarding virtual currencies and cryptocurrencies, stated the following:

• An ICO refers to the offer and sale of virtual commodities (eg, digital interests, digital assets or digital virtual currencies) to investors. Whether the issue of an ICO token is deemed a ‘security’ under Taiwan’s Securities and Exchange Act depends on the relevant facts of each case. When an ICO token is deemed a security, its offering will be deemed a securities offering, and thus it will be subject to the Securities and Exchange Act.
• Where the issuer of virtual currencies or an ICO makes any misrepresentations or promises unreasonably high returns to attract investors or both, the issuer is deemed to have committed fraud or conducted illegal fundraising.

Under the current regime, the offer and sale of securities in Taiwan, whether through a public offering or private placement, are regulated activities and are conducted under the Securities and Exchange Act, its related regulations and relevant rulings issued occasionally by the FSC. Given this, cryptocurrencies characteristic of securities (and should therefore constitute ‘securities’ under the Securities and Exchange Act) should be subject to the Securities and Exchange Act and the regulations on STOs promulgated by the TPEx under the authorisation of the FSC.

Concerning cryptoassets that are not deemed securities, financial products or services, the competent authority as well as the applicable rules and restrictions will depend on the nature of the assets. For example, if the assets are designed to be used for electronic payment, these assets may be subject to the rules and restrictions under the relevant banking or payment laws. By contrast, if the assets are not related to any regulated businesses or activities, the general principles under Taiwan’s Civil Code or Consumer Protection Act or both are applicable.

What rules and restrictions govern the conduct of, and investment in, security token offerings (STOs)?

The FSC issued a ruling on 3 July 2019 to officially define security tokens as a type of security. It amended several regulations and issued several rulings in January 2020 to lay out some major principles concerning the issuance of security tokens, the exemption of STOs from the filing obligation under the Securities and Exchange Act and the establishment of STO platforms. It also authorised the TPEx to supervise STOs. With the authority and intent to regulate the issuance of security tokens and the establishment of STO platforms, in January 2020, the TPEx promulgated the TPEx Rules Governing the Operation by Securities Firms of the Business of Proprietary Trading of Security Tokens and TPEx Rules Governing Information to be Published in Prospectuses for Applications for Security Token Offerings for Over-the-Counter Trading (together with the regulations and rulings published by the FSC on STOs: the STO regulations). The STO regulations were further amended in 2022. Below is a summary of the FSC’s position and the STO regulations.

Virtual currencies that are deemed securities (security tokens) refer to tokens that:

• utilise cryptography, distributed ledger technology or other similar technologies to represent their value that can be stored, exchanged or transferred through digital mechanisms;
• are transferable; and
• encompass all the following attributes of an investment:
  • funding provided by investors;
  • the provision of funding for a common enterprise or project;
  • investors expecting to receive profits; and
  • profits generated primarily on the efforts of the issuer or third parties.

The FSC contemplates the application of different regulations on STOs below or above the threshold of NT$30 million. An STO of NT$30 million or less (exempted STO) should comply with the STO regulations as stated below and the filing obligation under the Securities and Exchange Act may be exempted. An STO above NT$30 million must first apply to be tested in the financial regulatory sandbox under the Financial Technology Development and Innovative Experimentation Act and, if the experiment has a positive outcome, its offering may then be conducted under the Securities and Exchange Act.

For exempted STOs, key points of the STO regulations are outlined below.

• Qualifications of the issuer: the issuer must be a company limited by shares incorporated under the laws of Taiwan and not a company listed on the Taiwan Stock Exchange, TPEx or traded on the Emerging Stock Market.
• Eligible investors and amount limits: generally, only ‘professional investors’ are eligible to participate in STOs. Where a professional investor is a natural person, the maximum subscription amount is NT$300,000 per STO.
• The issuance process: issuers must conduct STOs on a single platform, and the platform operator must ensure that the issuer meets the relevant requirements and that the prospectus is well prepared. Where the platform operator itself is an STO issuer, the issuer should not launch an STO without a prior review by TPEx.

• The trading mechanism of security tokens: the platform operator should obtain a securities dealer licence and handle the trading by way of price negotiation. The platform operator should be the counterparty to every transaction and should offer a reasonable reference quotation based on the market conditions. Also, each security token under an STO programme may be traded only on a single platform.
• Maximum transaction amounts: where a professional investor is a natural person, the maximum holding amount under an STO programme is NT$300,000. Also, the maximum daily transaction limit for each STO is 50 per cent of the total issuance amount under the STO programme.

• Qualifications of the platform operator: the platform operator should obtain a securities dealer licence, have minimum paid-in capital of NT$100 million and provide an operation bond to the amount of NT$10 million.
• Total offering amount capacity: the total offering amount of all exempted STOs on a single platform should not exceed NT$200 million. A platform can process a second STO only six months after the security tokens of the first STO have been traded on the platform.
• Transfer and record-keeping: the platform operator should enter into an agreement with the Taiwan Depository and Clearing Corporation and transmit trading information such as balance changes and balance statements to the Taiwan Depository and Clearing Corporation for its record daily. The Taiwan Depository and Clearing Corporation should provide an STO balance inquiry service to investors.

The subscription and trading of security tokens should be conducted on a real-name basis and the transactions must be conducted in Taiwanese dollars under the same name as is featured on the bank account.

To apply for an STO with the TPEx, a prospectus of the STO is required. The preparation of and disclosure in the prospectus should follow the TPEx Rules Governing Information to be Published in Prospectuses for Applications for Security Token Offerings for Over-the-Counter Trading as promulgated by the TPEx.

Also, since TPEx is designated by the FSC as the supervising authority of STOs and the FSC authorises TPEx to further promulgate the relevant regulations governing STOs, STOs should comply with the relevant rules and regulations promulgated or amended occasionally by the TPEx in addition to the regulations and ruling issued by the FSC.

What rules and restrictions govern the issue of, and investment in, stablecoins?

There are no rules and restrictions that explicitly govern the issue of, and investment in, stablecoins.

However, depending on the nature, structure and models involved in or relating to particular stablecoins, stablecoins and their issuance may be subject to the laws and regulations governing, among other things, securities (especially if the stablecoins will still appreciate) and electronic payments.

Please note that the Central Bank released a report in December 2021 warning that stablecoins are used to facilitate speculative trading and investment in virtual assets and are not 100 per cent price-stable. The report further indicates that the issuance of stablecoins shall comply with the related regulations governing electronic payment institutions, banks, etc, if the relevant activities fall within the scope of regulated activities under electronic payment and banking laws.

Are cryptoassets distributed by airdrop treated differently than other types of offering mechanisms?

The nature of a cryptoasset is the determining factor as to whether it is subject to the laws and regulations governing securities or financial products. Generally, no cryptoasset will be treated differently simply because it is distributed by airdrop.

What laws and regulations govern the advertising and marketing of cryptoassets used for investment and financing?

The advertising and marketing of security tokens should comply with the STO regulations, as well as the relevant rules and regulations that may be issued occasionally by the relevant regulators.

Are investors in an ICO/STO/stablecoin subject to any restrictions on their trading after the initial offering?

The trading of cryptoassets that are deemed securities (ie, security tokens) should comply with the STO regulations, as well as the relevant rules and regulations that may be issued occasionally by the relevant regulators.

How are crowdfunding and cryptoasset offerings treated differently under the law?

The FSC previously established the following regulatory regime for equity-based crowdfunding, which is exempted from the prior approval or effective registration normally required under the Securities and Exchange Act, namely:

• The Go Incubation Board for Start-up and Acceleration Firms (GISA) of TPEx: TPEx, one of the two securities exchanges in Taiwan, established GISA in 2014 to assist innovative and creative small-sized, non-public companies with capital raising. A company possessing innovative or creative ideas with growth potential is qualified to apply for GISA registration with TPEx. After TPEx has approved the application, the company will first receive counselling services from TPEx regarding accounting, internal control, marketing and legal affairs. After the counselling period, there will be another TPEx review to examine, among other things, the company’s management teams, the role of the board of directors, accounting and internal control systems and the reasonableness and feasibility of the plan for capital raising. If TPEx is satisfied with the review, the company may raise capital on GISA. The amount raised by the company through GISA may not exceed NT$30 million unless otherwise approved. Also, an investor’s annual maximum amount of investment through GISA should not exceed NT$150,000, except for angel investors defined by TPEx or wealthy individuals with assets exceeding an amount set by TPEx who have professional knowledge regarding financial products or trading experience.
• Equity-based crowdfunding on the platforms of securities firms: a securities firm may also establish a crowdfunding platform and conduct equity crowdfunding business. Currently, a company with paid-in capital of less than NT$50 million may enter into a contract with a qualified securities firm to raise funds through the crowdfunding platform maintained by the securities firm if the total amount of funds raised by the company through all securities firms’ crowdfunding platforms in a year do not exceed NT$30 million. The amount of investment made by an investor on a securities firm’s platform may not exceed NT$50,000 for each subscription and may not exceed NT$100,000 in aggregate in a year, except for angel investors as defined in the relevant regulations.

What laws and regulations govern cryptoasset transfer agents and share registrars?

The FSC issued a ruling on 3 July 2019 that officially defines ‘security tokens’ as a type of securities. It further amended several regulations on securities firms and issued several rulings in January 2020 to give authority to the issuance of security tokens, the exemption of STOs from the filing obligation under the Securities and Exchange Act and the establishment of the STO platforms. It also authorised the TPEx as the supervising authority of STOs. To regulate the issuance of security tokens and the establishment of the STO platform, the TPEx promulgated in January 2020 the TPEx Rules Governing the Operation by Securities Firms of the Business of Proprietary Trading of Security Tokens and TPEx Rules Governing Information to be Published in Prospectuses for Applications for Security Token Offerings for Over-the-Counter Trading (together with the regulations and rulings published by the FSC on STOs: the STO regulations). The qualifications for the STO platform operators are stipulated in these regulations. For other cryptoassets, there are no rules and restrictions explicitly governing the transfer agents or share registrars of other cryptoassets.

What anti-money laundering (AML) and know-your-customer (KYC) requirements and guidelines apply to the offering of cryptoassets?

With regard to the anti-money laundering (AML) requirements that apply to the offering of cryptoassets, Taiwan’s AML law, the Money Laundering Control Act (MLCA), was amended in November 2018. This amendment has moved Taiwan’s AML standards closer to those recognised internationally. With respect to digital currency platform operators or transactions, the amended MLCA has brought the concept of ‘virtual currency platforms and trading business’ into Taiwan's AML regulatory regime, under which the enterprises that fall within the designated scope are subject to the relevant rules applicable to financial institutions under the MLCA. On 7 April 2021, Taiwan’s Executive Yuan issued a ruling (the AML ruling), interpreting the scope of enterprises of ‘virtual currency platforms and trading business’ under the MLCA, which took effect on 1 July 2021. The scope covers those who engage in the following activities for others:

• exchanges between virtual currency, Taiwanese dollars, foreign currencies or currencies issued by mainland China, Hong Kong or Macao;
• exchanges between virtual currencies;
• transfers of virtual currencies;
• the custody or administration of virtual currencies or providing instruments enabling control over virtual currencies; and
• the provision of financial services related to the issuance or sale of virtual currencies.

After the AML ruling, the FSC promulgated the draft of the Regulations Governing Anti-Money Laundering and Countering the Financing of Terrorism for Enterprises of Virtual Currency Platforms and Trading Business (the Crypto AML Regulations), which took effect on 1 July 2021 (except for the provision requiring the ‘transfer out’ of cryptocurrency to be carried out on a real-name basis for both the transferor and transferee – the effective date of such provision will be determined by the FSC). According to the Regulations, the designated operators of cryptoassets and exchanges are required to establish, among other things, an internal control and audit mechanism, a reporting procedure of suspicious transactions and a KYC procedure.

In addition, in September 2021, the FSC issued an interpretative letter in relation to the Crypto AML Regulations. According to the letter, the enterprises of ‘virtual currency platforms and trading business’ must complete the AML compliance statement for the first time within the following time limits:

• for enterprises that conducted a virtual currency platform and trading business prior to the letter being issued, within two months of 1 July 2021; and
• for enterprises that intended to conduct a virtual currency platform and trading business after the letter was issued, before the beginning of the business operation.

What laws and regulations apply in the context of cryptoassets to enforce government sanctions, anti-terrorism financing principles, and Financial Action Task Force (FATF) standards?

There are no laws and regulations in this regard, except for Anti-Money Laundering (AML) regulations.