Taiwan’s Legislature Considers Virtual Asset Management Bill to Protect Consumers

On October 25, Taiwanese legislators tabled the Virtual Asset Management Bill before the single-chamber parliament, the Legislative Yuan. This initiative seeks to bolster consumer protection and furnish better oversight over the burgeoning digital asset sector.

The 30-page document delineates several pragmatic obligations for Virtual Asset Service Providers (VASPs). Noteworthy mandates include the segregation of client funds from the firm’s operational reserves, the inception of an internal audit and control system, and membership in local trade associations pertinent to digital assets. Although the bill is seen as moderate, it forgoes the imposition of a 1:1 reserve requirement for stablecoin issuers and does not delve into the realm of algorithmic stablecoins.

The legislation also outlines penalties for unlicensed VASPs operations, establishing fines ranging from 2 million Taiwanese dollars (approximately $60,000) to 20 million TWD (around $600,000). Existing market participants have been granted a six-month window post-enactment to secure the necessary licensure.

This legislative venture follows the September 2023 guidelines issued by the Financial Supervisory Commission (FSC) of Taiwan, which barred foreign VASPs from operating within Taiwanese jurisdiction without requisite approvals. This move comes amidst the formation of a self-regulatory body by major crypto exchanges within Taiwan on September 26. Prominent local exchanges like MaiCoin, BitstreetX, Hoya Bit, Bitgin, Rybit, Xrex, and Shangbito congregated to establish the Taiwan Virtual Asset Platform and Transaction Business Association, aiming to foster a collaborative environment between the crypto industry and regulatory bodies.

In juxtaposition with the more stringent regulatory frameworks seen in neighboring Hong Kong and Japan, Taiwan’s proposal appears more lenient. Unlike Hong Kong’s rigid stance on derivatives and stablecoins, and Japan’s requirement for the employment of custodians by locally accredited exchanges, the Taiwanese bill merely emphasizes the separation of client and company funds.

Furthermore, the bill mandates periodic reporting by exchange operators, although it doesn’t specifically address Proof of Reserves. It leaves room for the regulatory body to devise asset ratio rules post consultations with industry stakeholders. This nuanced approach reflects a measured stride towards establishing a regulatory framework post the collapse of the FTX exchange in November of the previous year, which had garnered a significant user base in Taiwan due to its favorable interest rates on US dollars compared to local banking offerings.

Preliminary feedback from the crypto sector in Taiwan displays a positive outlook towards the inception of formal regulatory supervision, which is seen as a constructive step towards legitimizing the industry.

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Estonia Shuts Down Crypto Firms

In recent news, Estonia has strengthened its Anti-Money Laundering laws and almost 400 virtual asset service providers (VASPs) have shut down as a result. The amended laws expanded the defined scope of VASPs and increased licensing fees, capital requirements, and information reporting requirements. Additionally, the laws introduced the Financial Action Task Force Travel Rule. The Estonian Financial Intelligence Unit (FIU) announced that almost 200 domestic crypto service providers voluntarily shut down, and another 189 had their authorizations revoked due to non-compliance.

The FIU’s director, Matis Mäeker, noted that the response from the legislator and the supervision activities have been relevant, given the documents submitted by the service providers that lost their authorizations and their methods of operation and risks involved. The FIU also found several general issues within the companies it shut down, including misleading company information. For instance, some companies had registered board members and company contacts without their knowledge, while others had falsified professional backgrounds on their resumes. Additionally, many companies had copy-pasted identical business plans from each other, which were also found to be lacking any logic or connection with Estonia.

Estonia has made significant efforts to implement strong AML laws, primarily due to the discovery in 2018 that around $235 billion worth of illicit capital had been laundered through the Estonian branch of Denmark megabank Danske Bank. The ongoing war between Russia and Ukraine has also had an impact, as Estonia has pushed to cut off revenues supporting Russia’s war machine and protect international financial systems via strong AML regulation as part of its partnership with the U.S. Estonia is a member of the European Union and will soon have to implement the upcoming Markets in Crypto-Assets (MiCA) laws that are slated to come into effect in early 2025. Under MiCA, crypto firms will be subject to stringent AML and terrorism prevention requirements.

In conclusion, Estonia has taken significant steps to ensure the implementation of robust AML laws. The recent enhancement of AML laws has resulted in the closure of nearly 400 crypto firms in Estonia. The FIU found several issues with the companies it shut down, including misleading company information. As a member of the European Union, Estonia will soon have to implement MiCA laws, which will require crypto firms to comply with stringent AML and terrorism prevention requirements.

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Ukraine passes legislation to recognize and regulate crypto

The Ukrainian Parliament has adopted legislation regulating foriegn and domestic cryptocurrency exchanges operating from within the country.

On Sept. 8, the Ukrainian Parliament adopted the draft law “On Virtual Assets,” legally recognizing cryptocurrency in the country for the first time. The legislation is based on the existing standards developed by the intergovernmental policy-making organization, Financial Action Task Force on Money Laundering (FATF).

The Ukraine’s Ministry of Digital Transformation will be tasked with overseeing the implementation of the new virtual asset regulation and guiding the industry’s growth, in adherence with “international standards.

Anastasia Bratko of the Ministry of Digital Transformation said the law allows companies to launch virtual asset markets in Ukraine and enables banks to “open accounts for crypto companies.

“Ukrainians will also be able to declare their income in virtual assets,” she said, adding that the law “guarantees judicial protection of the rights to virtual asset owners.”

An announcement from the ministry emphasized that “the country will receive additional tax revenues to the budget, which will be paid by crypto companies,” adding:

“The adopted norms establish rules for service providers related to the circulation of virtual assets and contribute to the market’s de-shadowing.”

Virtual asset service providers (VASPs) “must have an impeccable business reputation” and will be required to disclose their ownership structure to identify their ultimate beneficial owners. Internal anti-money launder measures must also be maintained by VASPs.

Deputy Minister of Digital Transformation of Ukraine, Oleksander Bornyakov, highlighted provisions contained in the legislation to attract “foreign exchange to the Ukrainian market,” adding:

“It will become a powerful incentive for the further development of the crypto-sphere in Ukraine. Banks will open accounts for them and conduct transactions with a new class of assets. I am sure that society, business and the state will benefit from the legalization of the new sector of the economy.”

Related: Ukrainian ministry considering digital currency pilot for staff salaries

Last month, Mikhail Fedorov, Ukraine’s Deputy Prime Minister and the head of the country’s Ministry of Digital Transformation, revealed that his ministry was exploring using a central bank digital currency (CBDC) to make salary payments in an early pilot of the technology.

Ukrainian President Volodymyr Zelenskyy signed a law enabling the country’s central bank to issue a CBDC in July.