At a glance: cryptoassets for investment and financing in Taiwan

Cryptoassets for funding and financing

Regulatory threshold

What attributes do the regulators contemplate in figuring out whether or not a cryptoasset is topic to regulation underneath the legal guidelines in your jurisdiction?

Usually, the regulators study the character of a cryptoasset, focusing specifically on whether or not the asset is a safety, monetary service or product.

On 30 December 2013, the Central Financial institution of the Republic of China (Taiwan) and the Monetary Supervisory Fee (FSC) launched a joint press launch outlining the federal government’s place on bitcoin. The 2 authorities maintain the view that bitcoin can not presently be thought-about ‘authorized tender’, ‘forex’ or a ‘typically accepted medium of change’ in Taiwan, however somewhat a extremely speculative digital digital commodity. In one other FSC press launch issued in 2014, the FSC ordered that native banks neither settle for bitcoin as a fee methodology nor present some other companies associated to bitcoin (eg, the change of bitcoins for fiat forex). Additional, the FSC issued one other press launch on 4 March 2022 to make it clear that cryptoassets, together with bitcoin, should not thought-about currencies underneath the present regulatory regime in Taiwan, however are thought-about digital digital commodities.

Additionally, the commonly thought-about core authorized difficulty regarding digital currencies and cryptocurrencies besides bitcoin is whether or not the securities laws applies – that’s, whether or not an preliminary coin providing (ICO) or some other funding actions concerning digital currencies and cryptocurrencies can be thought-about issuing securities underneath Taiwan’s present securities legislation regime. On 3 July 2019, the FSC formally introduced the factors for figuring out whether or not digital currencies and cryptocurrencies attribute of securities shall represent ‘securities’ underneath Taiwan’s Securities and Exchange Act.

Investor classification

How are traders in cryptoassets categorised and handled otherwise?

Safety tokens

In accordance with the safety token choices (STOs) rules revealed by the Taipei Change (TPEx) underneath the authorisation of the FSC, solely skilled traders are eligible for STOs and if the skilled investor is a pure individual, the utmost subscription quantity is NT$300,000 for every STO. Underneath the present regulatory regime, a pure individual is mostly certified as an expert investor if she or he could present proof of belongings of at the least NT$30 million and has enough skilled information and buying and selling expertise.

Preliminary coin choices

What guidelines and restrictions govern the conduct of, and funding in, preliminary coin choices (ICOs)?

In 2017, the FSC, in response to the rising dimension of ICOs and different funding actions concerning digital currencies and cryptocurrencies, said the next:

• An ICO refers back to the provide and sale of digital commodities (eg, digital pursuits, digital belongings or digital digital currencies) to traders. Whether or not the problem of an ICO token is deemed a ‘safety’ underneath Taiwan’s Securities and Change Act relies on the related info of every case. When an ICO token is deemed a safety, its providing might be deemed a securities providing, and thus it is going to be topic to the Securities and Change Act.
• The place the issuer of digital currencies or an ICO makes any misrepresentations or guarantees unreasonably excessive returns to draw traders or each, the issuer is deemed to have dedicated fraud or carried out unlawful fundraising.

Underneath the present regime, the provide and sale of securities in Taiwan, whether or not via a public providing or non-public placement, are regulated actions and are carried out underneath the Securities and Change Act, its associated rules and related rulings issued often by the FSC. Given this, cryptocurrencies attribute of securities (and will due to this fact represent ‘securities’ underneath the Securities and Change Act) must be topic to the Securities and Change Act and the rules on STOs promulgated by the TPEx underneath the authorisation of the FSC.

Regarding cryptoassets that aren’t deemed securities, monetary services or products, the competent authority in addition to the relevant guidelines and restrictions will rely upon the character of the belongings. For instance, if the belongings are designed for use for digital fee, these belongings could also be topic to the principles and restrictions underneath the related banking or fee legal guidelines. Against this, if the belongings should not associated to any regulated companies or actions, the overall rules underneath Taiwan’s Civil Code or Consumer Protection Act or each are relevant.

Safety token choices

What guidelines and restrictions govern the conduct of, and funding in, safety token choices (STOs)?

The FSC issued a ruling on 3 July 2019 to formally outline safety tokens as a kind of safety. It amended a number of rules and issued a number of rulings in January 2020 to put out some main rules regarding the issuance of safety tokens, the exemption of STOs from the submitting obligation underneath the Securities and Change Act and the institution of STO platforms. It additionally authorised the TPEx to oversee STOs. With the authority and intent to manage the issuance of safety tokens and the institution of STO platforms, in January 2020, the TPEx promulgated the TPEx Guidelines Governing the Operation by Securities Corporations of the Enterprise of Proprietary Buying and selling of Safety Tokens and TPEx Guidelines Governing Data to be Revealed in Prospectuses for Functions for Safety Token Choices for Over-the-Counter Buying and selling (along with the rules and rulings revealed by the FSC on STOs: the STO rules). The STO rules had been additional amended in 2022. Beneath is a abstract of the FSC’s place and the STO rules.

Definition of safety token

Digital currencies which might be deemed securities (safety tokens) seek advice from tokens that:

• utilise cryptography, distributed ledger know-how or different related applied sciences to signify their worth that may be saved, exchanged or transferred via digital mechanisms;
• are transferable; and
• embody all the next attributes of an funding:
  • funding offered by traders;
  • the availability of funding for a typical enterprise or mission;
  • traders anticipating to obtain earnings; and
  • earnings generated totally on the efforts of the issuer or third events.

Key factors of STO rules

The FSC contemplates the applying of various rules on STOs under or above the brink of NT$30 million. An STO of NT$30 million or much less (exempted STO) ought to adjust to the STO rules as said under and the submitting obligation underneath the Securities and Change Act could also be exempted. An STO above NT$30 million should first apply to be examined within the monetary regulatory sandbox underneath the Monetary Know-how Growth and Modern Experimentation Act and, if the experiment has a optimistic end result, its providing could then be carried out underneath the Securities and Change Act.

For exempted STOs, key factors of the STO rules are outlined under.

Rules on issuance (main market)

• {Qualifications} of the issuer: the issuer should be an organization restricted by shares included underneath the legal guidelines of Taiwan and never an organization listed on the Taiwan Inventory Change, TPEx or traded on the Rising Inventory Market.
• Eligible traders and quantity limits: typically, solely ‘skilled traders’ are eligible to take part in STOs. The place an expert investor is a pure individual, the utmost subscription quantity is NT$300,000 per STO.
• The issuance course of: issuers should conduct STOs on a single platform, and the platform operator should be certain that the issuer meets the related necessities and that the prospectus is properly ready. The place the platform operator itself is an STO issuer, the issuer mustn’t launch an STO with out a prior evaluate by TPEx.

Rules on buying and selling (secondary market)

• The buying and selling mechanism of safety tokens: the platform operator ought to receive a securities vendor licence and deal with the buying and selling by the use of value negotiation. The platform operator must be the counterparty to each transaction and will provide an affordable reference citation primarily based in the marketplace circumstances. Additionally, every safety token underneath an STO programme could also be traded solely on a single platform.
• Most transaction quantities: the place an expert investor is a pure individual, the utmost holding quantity underneath an STO programme is NT$300,000. Additionally, the utmost each day transaction restrict for every STO is 50 per cent of the overall issuance quantity underneath the STO programme.

STO platform operator

• {Qualifications} of the platform operator: the platform operator ought to receive a securities vendor licence, have minimal paid-in capital of NT$100 million and supply an operation bond to the quantity of NT$10 million.
• Complete providing quantity capability: the overall providing quantity of all exempted STOs on a single platform mustn’t exceed NT$200 million. A platform can course of a second STO solely six months after the safety tokens of the primary STO have been traded on the platform.
• Switch and record-keeping: the platform operator ought to enter into an settlement with the Taiwan Depository and Clearing Company and transmit buying and selling data equivalent to steadiness adjustments and steadiness statements to the Taiwan Depository and Clearing Company for its file each day. The Taiwan Depository and Clearing Company ought to present an STO steadiness inquiry service to traders.

Subscription and buying and selling

The subscription and buying and selling of safety tokens must be carried out on a real-name foundation and the transactions should be carried out in Taiwanese {dollars} underneath the identical identify as is featured on the checking account.

Prospectus for STO

To use for an STO with the TPEx, a prospectus of the STO is required. The preparation of and disclosure within the prospectus ought to observe the TPEx Guidelines Governing Data to be Revealed in Prospectuses for Functions for Safety Token Choices for Over-the-Counter Buying and selling as promulgated by the TPEx.

Additionally, since TPEx is designated by the FSC because the supervising authority of STOs and the FSC authorises TPEx to additional promulgate the related rules governing STOs, STOs ought to adjust to the related guidelines and rules promulgated or amended often by the TPEx along with the rules and ruling issued by the FSC.

Stablecoins

What guidelines and restrictions govern the problem of, and funding in, stablecoins?

There are not any guidelines and restrictions that explicitly govern the problem of, and funding in, stablecoins.

Nevertheless, relying on the character, construction and fashions concerned in or regarding explicit stablecoins, stablecoins and their issuance could also be topic to the legal guidelines and rules governing, amongst different issues, securities (particularly if the stablecoins will nonetheless recognize) and digital funds.

Please word that the Central Financial institution launched a report in December 2021 warning that stablecoins are used to facilitate speculative buying and selling and funding in digital belongings and should not 100 per cent price-stable. The report additional signifies that the issuance of stablecoins shall adjust to the associated rules governing digital fee establishments, banks, and so forth, if the related actions fall inside the scope of regulated actions underneath digital fee and banking legal guidelines.

Airdrops

Are cryptoassets distributed by airdrop handled otherwise than different sorts of providing mechanisms?

The character of a cryptoasset is the figuring out issue as as to if it’s topic to the legal guidelines and rules governing securities or monetary merchandise. Usually, no cryptoasset might be handled otherwise just because it’s distributed by airdrop.

Promoting and advertising and marketing

What legal guidelines and rules govern the promoting and advertising and marketing of cryptoassets used for funding and financing?

The promoting and advertising and marketing of safety tokens ought to adjust to the STO rules, in addition to the related guidelines and rules which may be issued often by the related regulators.

Buying and selling restrictions

Are traders in an ICO/STO/stablecoin topic to any restrictions on their buying and selling after the preliminary providing?

The buying and selling of cryptoassets which might be deemed securities (ie, safety tokens) ought to adjust to the STO rules, in addition to the related guidelines and rules which may be issued often by the related regulators.

Crowdfunding

How are crowdfunding and cryptoasset choices handled otherwise underneath the legislation?

The FSC beforehand established the next regulatory regime for equity-based crowdfunding, which is exempted from the prior approval or efficient registration usually required underneath the Securities and Change Act, specifically:

• The Go Incubation Board for Begin-up and Acceleration Corporations (GISA) of TPEx: TPEx, one of many two securities exchanges in Taiwan, established GISA in 2014 to help modern and inventive small-sized, private firms with capital elevating. An organization possessing modern or inventive concepts with progress potential is certified to use for GISA registration with TPEx. After TPEx has accepted the applying, the corporate will first obtain counselling companies from TPEx concerning accounting, inside management, advertising and marketing and authorized affairs. After the counselling interval, there might be one other TPEx evaluate to look at, amongst different issues, the corporate’s administration groups, the position of the board of administrators, accounting and inside management methods and the reasonableness and feasibility of the plan for capital elevating. If TPEx is glad with the evaluate, the corporate could increase capital on GISA. The quantity raised by the corporate via GISA could not exceed NT$30 million until in any other case accepted. Additionally, an investor’s annual most quantity of funding via GISA mustn’t exceed NT$150,000, aside from angel traders outlined by TPEx or rich people with belongings exceeding an quantity set by TPEx who’ve skilled information concerning monetary merchandise or buying and selling expertise.
• Fairness-based crowdfunding on the platforms of securities companies: a securities agency can also set up a crowdfunding platform and conduct fairness crowdfunding enterprise. Presently, an organization with paid-in capital of lower than NT$50 million could enter right into a contract with a professional securities agency to boost funds via the crowdfunding platform maintained by the securities agency if the overall quantity of funds raised by the corporate via all securities companies’ crowdfunding platforms in a yr don’t exceed NT$30 million. The quantity of funding made by an investor on a securities agency’s platform could not exceed NT$50,000 for every subscription and will not exceed NT$100,000 in combination in a yr, aside from angel traders as outlined within the related rules.

Switch brokers and share registrars

What legal guidelines and rules govern cryptoasset switch brokers and share registrars?

The FSC issued a ruling on 3 July 2019 that formally defines ‘safety tokens’ as a kind of securities. It additional amended a number of rules on securities companies and issued a number of rulings in January 2020 to offer authority to the issuance of safety tokens, the exemption of STOs from the submitting obligation underneath the Securities and Change Act and the institution of the STO platforms. It additionally authorised the TPEx because the supervising authority of STOs. To manage the issuance of safety tokens and the institution of the STO platform, the TPEx promulgated in January 2020 the TPEx Guidelines Governing the Operation by Securities Corporations of the Enterprise of Proprietary Buying and selling of Safety Tokens and TPEx Guidelines Governing Data to be Revealed in Prospectuses for Functions for Safety Token Choices for Over-the-Counter Buying and selling (along with the rules and rulings revealed by the FSC on STOs: the STO rules). The {qualifications} for the STO platform operators are stipulated in these rules. For different cryptoassets, there are not any guidelines and restrictions explicitly governing the switch brokers or share registrars of different cryptoassets.

Anti-money laundering and know-your-customer compliance

What anti-money laundering (AML) and know-your-customer (KYC) necessities and pointers apply to the providing of cryptoassets?

With regard to the anti-money laundering (AML) necessities that apply to the providing of cryptoassets, Taiwan’s AML legislation, the Cash Laundering Management Act (MLCA), was amended in November 2018. This modification has moved Taiwan’s AML requirements nearer to these recognised internationally. With respect to digital forex platform operators or transactions, the amended MLCA has introduced the idea of ‘digital forex platforms and buying and selling enterprise’ into Taiwan’s AML regulatory regime, underneath which the enterprises that fall inside the designated scope are topic to the related guidelines relevant to monetary establishments underneath the MLCA. On 7 April 2021, Taiwan’s Govt Yuan issued a ruling (the AML ruling), deciphering the scope of enterprises of ‘digital forex platforms and buying and selling enterprise’ underneath the MLCA, which took impact on 1 July 2021. The scope covers those that interact within the following actions for others:

• exchanges between digital forex, Taiwanese {dollars}, foreign currency echange or currencies issued by mainland China, Hong Kong or Macao;
• exchanges between digital currencies;
• transfers of digital currencies;
• the custody or administration of digital currencies or offering devices enabling management over digital currencies; and
• the availability of monetary companies associated to the issuance or sale of digital currencies.

After the AML ruling, the FSC promulgated the draft of the Rules Governing Anti-Cash Laundering and Countering the Financing of Terrorism for Enterprises of Digital Forex Platforms and Buying and selling Enterprise (the Crypto AML Rules), which took impact on 1 July 2021 (aside from the availability requiring the ‘switch out’ of cryptocurrency to be carried out on a real-name foundation for each the transferor and transferee – the efficient date of such provision might be decided by the FSC). In accordance with the Rules, the designated operators of cryptoassets and exchanges are required to ascertain, amongst different issues, an inside management and audit mechanism, a reporting process of suspicious transactions and a KYC process.

As well as, in September 2021, the FSC issued an interpretative letter in relation to the Crypto AML Rules. In accordance with the letter, the enterprises of ‘digital forex platforms and buying and selling enterprise’ should full the AML compliance assertion for the primary time inside the following deadlines:

• for enterprises that carried out a digital forex platform and buying and selling enterprise previous to the letter being issued, inside two months of 1 July 2021; and
• for enterprises that meant to conduct a digital forex platform and buying and selling enterprise after the letter was issued, earlier than the start of the enterprise operation.

Sanctions and Monetary Motion Activity Pressure compliance

What legal guidelines and rules apply within the context of cryptoassets to implement authorities sanctions, anti-terrorism financing rules, and Monetary Motion Activity Pressure (FATF) requirements?

There are not any legal guidelines and rules on this regard, aside from Anti-Cash Laundering (AML) rules.