Apr 2024

Taiwan

Law Over Borders Comparative Guide:

Cryptoassets

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1 . Are cryptoassets (including, for example, cryptocurrencies, stablecoins and non-fungible tokens) defined and, if so, what are the major elements?

There are no specific official definitions of cryptoassets in Taiwan, except as set out below.

Anti-money laundering (AML) regulatory framework

Under 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), a virtual currency refers to a digital representation of value with the use of cryptography and distributed ledger technology or other similar technology that can be digitally stored, exchanged or transferred, and can be used for payment or investment purposes. However, virtual currencies do not include digital representations of the New Taiwan Dollar, foreign currencies, currencies issued by mainland China, Hong Kong or Macao, securities and other financial assets issued in accordance with laws.

Security tokens

Cryptoassets that are deemed securities (i.e., 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.
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2 . What are the major laws/regulations specifically related to cryptoassets?

AML regulatory framework

The main AML legislation is the Crypto AML Regulations. The Financial Supervisory Commission (FSC), Taiwan’s financial regulator, oversees compliance with the Crypto AML Regulations. 

In addition to the Crypto AML Regulations, in September 2023, the FSC published guidelines for virtual asset service providers (the VASP Guidelines). Although the VASP Guidelines were issued under Taiwan’s AML regulatory framework, they do not only address AML-related matters. The VASP Guidelines also cover, among other things:

  • obligations of an issuer regarding the issuance of any virtual assets, such as announcement of the “whitepaper” on the issuer’s website;
  • a VASP’s mechanism for reviewing the launch of virtual assets;
  • custody and segregation of a VASP’s assets and customer assets;
  • fairness and transparency of transactions;
  • management mechanism of operation, information security and cold and hot wallets;
  • information disclosure;
  • internal control and audits; and 
  • their applicability to offshore VASPs.

Security tokens

Security tokens and their offering activities (i.e., security token offerings (STOs)) are governed by 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 (collectively, the STO Regulations). The TPEx (i.e., the Taipei Exchange) is authorised by the FSC to supervise STOs pursuant to the STO Regulations.

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3 . How are different types of cryptoassets regulated?

Cryptoassets, which are not linked or tied to the currency of any nation, are currently not accepted by the Central Bank of the Republic of China (Taiwan) (the Central Bank) as currency. In 2013, both the Central Bank and the FSC first expressed the government’s position toward Bitcoin by issuing a joint press release (the 2013 Release), under which the two authorities held that Bitcoin should not be considered a “currency”, but a highly speculative digital “virtual commodity”. The FSC issued further press releases on 19 December 2017 and 4 March 2022, in which it reiterated the government’s position as specified in the 2013 Release.

The only other laws, regulations or rulings that have been officially issued, promulgated or amended to specifically deal with the rise of cryptocurrencies are the STO Regulations, which govern the offering and issuance of security tokens and STOs, as discussed below, and the Crypto AML Regulations and VASP Guidelines, discussed in Question 2 above.

Security tokens

Different regulations apply to STOs depending on whether they are below or above the threshold of TWD 30 million. An STO above TWD 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.An STO of TWD 30 million or less (Exempted STO) should comply with the STO Regulations, which cover issues such as rules governing issuance/primary market (including qualifications of the issuerseligible investors and amount limits, the issuance process and prospectus requirements), trading/secondary market, transfer and record-keeping, etc.

Other types of cryptoassets

In relation to 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 of the relevant banking or payment laws. If the assets are not related to any regulated businesses or activities, the general principles of Taiwan’s Civil Code and/or Consumer Protection Act may still apply.

The Crypto AML Regulations and VASP Guidelines will likely apply to most cryptoassets, other than STOs. 

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4 . Is there an authorisation/licensing regime applicable to cryptoasset issuers/providers/exchanges and, if so, what are the requirements?

Security tokens

The issuance and trading of security tokens must comply with the STO Regulations, and must be carried out through a platform operated by an FSC-licensed securities dealer. 

Pursuant to the STO regulations, if any issuer wishes to issue security tokens, it would need to submit an application to a securities dealer, with attachments (including a prospectus). The process and key requirements are as follows:

  • The information contained in the prospectus shall comply with the rules and regulations announced by the Taipei Exchange, and the prospectus shall disclose the following professional opinions: 
    • opinion issued by an information technology professional(s) with respect to matters including the security of the information technology to be used in the STO; 
    • opinion issued by a financial professional(s) (a securities underwriter or a CPA(s) that does not provide attestation services to the issuer) on the fairness of the offering price; and 
    • opinion issued by an attorney(s) on the legality of the STO.
  • When professionals and attorneys issue opinions indicated above, they shall do as follows: 
    • they shall prudently evaluate their own professional ability and practical experience, and they may not have any direct or indirect interest relationship with the issuer that could affect their independence; 
    • they shall properly plan and execute appropriate work procedures to form a conclusion and issue the opinion on the basis thereof and, furthermore, shall fully and accurately record in the working papers for the case the procedures executed, the data collected, and the conclusions; 
    • they shall evaluate the completeness, accuracy, and reasonableness of the sources of data, parameters, and information used as the basis for issuing the opinion; 
    • they shall state that the personnel who prepared the opinion are professionally qualified and independent, and have evaluated the information and found it to be reasonable, correct, and compliant with relevant laws and regulations.
  • A securities dealer shall perform due diligence and confirm that the issuer meets all of the following conditions: 
    • the issuer has established an internal control system and implements it effectively; 
    • the accounting treatment complies with the Business Entity Accounting Act unless otherwise specified by the competent authority; 
    • there is no record of any material instance of dishonoring of a negotiable instrument of, or violation of the Tax Collection Act by, or any material litigation concluded within the past 2 years or still pending that calls into question the integrity and good faith of, the issuer or any of its directors, supervisors, or general manager;
    • the legality of the fundraising items and of the business operated by the issuer; 
    • the fundraising plan and its effects/benefits are necessary, reasonable, and feasible; 
    • any programmed auto execution that is done with respect to the security tokens offered is consistent with the description in the prospectus; 
    • any other matters as required by the Taipei Exchange.

Relevant public information and news reports indicate that one FSC-licensed securities dealer has been approved by the FSC to carry out such business, and the first STO, which is in the form of bonds, was launched in December 2023. It is worth keeping an eye on the possibility of new STO programs being launched in the near future, as industry players have highlighted various limitations in STO regulations. These limitations include, among others, those on the maximum issuance amount for a single STO program, the maximum investment amount for individual investors, and the associated costs of launching an STO.

AML regulatory framework

Enterprises of “virtual currency platforms and trading business” that engage in the following activities for others are subject to the Crypto AML Regulations: 

  • 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 the provision of instruments enabling control over virtual currencies; and 
  • the provision of financial services related to the issuance or sale of virtual currencies. 

Under the Crypto AML Regulations, such enterprises are required to complete and submit an “AML compliance statement” to the FSC (or Taipei Exchange, which was appointed by the FSC to review the filing in February 2024), and they may not officially start their business before they are duly registered with the FSC. Their successful registration with the FSC will be announced on the FSC’s website. Due to the industry’s novelty, it is challenging to provide any estimate for the timeframe for the FSC/Taipei Exchange to assess the filing and complete the registration process. Therefore, the time required for making the registration will vary based on individual circumstances for each case.

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5 . Is the promotion of cryptoassets to consumers or investors regulated and, if so, how?

Security tokens

The issuance process must comply with the STO Regulations. Specifically, to apply for an STO with the TPEx, a prospectus 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. 

Please also find below certain rules that shall be followed by the securities dealers or the issuer with respect to the offering:

  • A securities dealer may not engage in any of the following conduct: 
    • failing to duly fulfil its duty of due diligence when issuing security tokens for an issuer; 
    • agreeing to or providing any specific interest or sharing of losses, or providing any judgment regarding whether a certain security token will rise or fall in price, or providing any investment recommendation, or providing investment consulting service, to induce investors to trade; 
    • any agreement between the securities dealer or any insider thereof and the issuer or relevant personnel thereof for purposes of improper profit;
    • concealing or omitting important financial or business information of an issuer that issues security tokens on its trading platform; 
    • arranging for the issuance of security tokens for an issuer through any channel other than the securities firm’s trading platform; 
    • concealing or making a false entry regarding information on any changes in security tokens; and
    • any other matter injurious to the rights and interests of investors or in violation of any relevant law or regulation.
  • The securities dealer shall carry out its responsibility to make a reasonable investigation of the qualifications required of a professional investor, and shall obtain reasonable and reliable supporting evidence from the investor.
  • During the fundraising period, the issuer may not make any public statement or publicly issue financial or business forecast information.

AML regulatory framework

The VASP Guidelines, issued in September 2023 under Taiwan’s AML regulatory framework, are also intended to cover issues beyond AML matters (see above Question 2). For example, as to disclosure obligations, an issuer of cryptoassets should announce the “white paper” on the issuer’s website, and that white paper should contain information such as details of the issuer, the issuance project, the quantity, price and conditions for the subscription, relevant rights and obligations in relation to the cryptoassets, risk disclosure, etc. In addition, when evaluating whether to accept the launch of any cryptoasset, the VASP should review, among other things, whether the advertising and solicitation carried out by the issuer contain any inappropriate statements or misrepresentations.

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6 . What anti-money laundering requirements apply to cryptoassets?

Virtual currency related business operators subject to the Crypto AML Regulations must complete an AML compliance statement and file it with the FSC before the business operation begins (see above Question 4). In addition, such operators must establish, among other things, an internal control and audit mechanism, a Know Your Client (KYC) procedure, a record-keeping mechanism, and procedures for reporting large-amount and suspicious transactions, etc, which, in practice, will be reviewed by the FSC (or Taipei Exchange) when an operator is making the registration with the FSC. Please note that suspicious transaction reports are mandatorily required under the Crypto AML Regulations, which provide that any enterprise shall file suspicious money laundering/terrorist financing transaction reports with Taiwan’s Ministry of Justice Investigation Bureau within two business days after the report has been approved by the responsible officer within the enterprise.

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7 . How is the ownership of cryptoassets defined or regulated?

For cryptoassets that are not considered to be securities or any other financial products or services, the current regulatory regime imposes no restrictions or prohibitions on their ownership or possession, their use in commercial transactions and their exchange for fiat currency in Taiwan. The courts in Taiwan generally hold that cryptoassets such as Bitcoin and USDT should have their monetary/property value. For instance, there have been cases where civil judgments have ruled in favor of creditors, resulting in the enforcement of cryptocurrencies (such as bitcoin and USDT) owned by the debtors through court proceedings. In relation to the Taiwan Civil Code, there have been discussions by the courts as well as legal commentators as to whether cryptoassets should be deemed to be “things”, “movable property”, “rights”, etc., as well as the appropriate approaches/methods to enforce a civil court decision where cryptoassets are involved. Some legal papers even discuss whether virtual currencies can be used as collateral for commercial transactions, and how laws should be applied and interpreted in such cases. However, there is still no definitive consensus on the above-mentioned issues to date.

Cryptoassets that are deemed securities may be owned and exchanged for fiat currency in Taiwan, subject to the STO Regulations. However, using these cryptoassets in commercial transactions is not permitted as the use of security tokens to purchase general goods and services is not allowed under the STO Regulations.

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8 . How are Decentralised Autonomous Organisations (DAOs) treated?

Under the current regulatory regime in Taiwan, there is no specific registration regime for DAOs. Conceptually, if a DAO is structured as a separate legal entity, then relevant assets should be considered owned by the DAO. On the other hand, if the DAO is not registered or incorporated as a separate legal entity, the assets should be considered owned by the participants of a DAO on a pro rata basis (depending on the “constitutional documents” of the DAO).

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9 . Are there any particular laws or rules which apply in the event of the crypto bankruptcy or insolvency?

There are no laws and regulations that specifically address the circumstances where cryptoassets are involved in a bankruptcy or insolvency matter or in the case of a bankruptcy/insolvency of a crypto exchange. As cryptoassets such as Bitcoin and USDT are generally held by Taiwanese courts to have their monetary/property value (see Question 7), the treatment in a bankruptcy case should depend on the terms of the legal relationship between the cryptocurrency exchange (as the bankrupt) and the user (as the creditor). 

For instance, under Taiwan’s Bankruptcy Code, where the cryptocurrency exchange is an adjudicated bankruptcy by a Taiwan court, a user’s claim against the cryptocurrency exchange should be subject to the applicable bankruptcy proceeding. However, for any asset not belonging to the bankrupt, the holder of the right to such an asset may take back that asset without the need to go through the bankruptcy proceeding. Legally speaking, if any cryptoassets are placed with the cryptocurrency exchange and such assets are therefore under the control of the exchange, whether a user may “take back” such cryptoassets without going through the bankruptcy proceeding should depend on whether the “ownership” of such assets rests with the exchange or the user. This will be determined by the terms of the legal or contractual relationship between the cryptocurrency exchange and the user.

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10 . Is a smart contract enforceable as a legal contract?

There are no laws and regulations that specifically address smart contracts. Whether a smart contract is “legal” or “enforceable” should be determined on a case-by-case basis based on the Taiwan Civil Code and some other applicable legal principles. For example, if all the “constituent elements” required for a contract are met (e.g., the parties can reach an agreement by conveying their ideas through the design of the smart contract), such an agreement should not be treated differently in relation to aspects such as its legality and enforceability simply because smart contract technologies are used. However, in a case where specific formalities are required under law (such as the transfer of real estate for which registration with the land authority would be required), the smart contract design alone will be insufficient to form and perform a contract.

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11 . What recourse does a victim of crypto fraud have?

From a legal perspective, the recourse a victim of crypto fraud may have should generally not be different from any other type of fraud where the victim lost their money or thing of value due to the defrauding activities. As to possible remedies, the victims of fraud may wish to gather relevant evidence and report to prosecutors/the police for criminal investigation. From a civil perspective, victims may file a lawsuit for damages based on the torts claim, and even consider whether to simultaneously apply to the court for “provisional attachment” to secure the compensation. In practical terms, however, the issue would be whether the victim or the authority, prosecutor or court can locate the whereabouts of the cryptoassets or successfully exert control over the cryptoassets.

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12 . Are there any other ongoing legal or regulatory consultations or other legal frameworks in the pipeline relating to cryptoassets?

See above, Question 2, regarding existing VASP Guidelines. In addition, according to relevant news reports, as requested by the FSC, certain local VASPs have formed a working group in preparation for the establishment of an industry association (or self-regulatory organisation) for VASPs, and in March 2024, the Ministry of the Interior approved the establishment of the association. It is generally expected that the entire process for establishment of such an association will be formally completed in 2024.

In October 2023, Taiwan’s legislative body, the Legislative Yuan (i.e., the congress), passed the first reading of the draft Virtual Asset Management Act (the Draft VA Act). The Draft VA Act aims to define virtual assets, establish operational standards for asset operators, ensure customer protection, and mandate membership in industry associations and regulatory approvals. Additionally, as reported in various news sources, the FSC is currently considering the implementation of a dedicated legislation for cryptocurrencies. A preliminary version of this law is expected to be announced in September 2024. Notwithstanding the above, it is generally expected that it will take more time for the government and industry players to build consensus about the rationale for regulating VAs (which might keep changing in the future) so it is generally expected that more time (e.g., several years) will be needed for specific VA legislation to be officially enacted by the congress. It is recommended that the industry players closely observe the potential regulatory developments in Taiwan.

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Christopher Lytras
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Filip Murár
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