EDIT: FSC must be careful with crypto

Taiwan has become more aware of risks involving cryptocurrencies since the collapse of the FTX exchange late last year, and is following in the footsteps of Singapore and Hong Kong in keeping a sharper eye on the crypto sector.

Last week, the Financial Supervisory Commission (FSC) announced guidelines for crypto service providers and exchanges, 10 days after confirming that it is monitoring crypto-related investments and transactions across the country.

It said it has received instructions from the Executive Yuan to monitor the crypto sector’s development in Taiwan. It is to focus on establishing a self-regulatory mechanism for service providers that allows members of the sector to monitor their own legal, ethical and security standards, rather than acting as an external regulatory body that monitors and enforces those standards.

The guidelines include disclosure of information by crypto service providers, review procedure for listing and removal of crypto products, separation of assets between service providers and clients, and assurance of transparency and fairness.

Preventing money laundering, protecting consumers’ interests, maintaining information security, promoting institutional auditing and managing so-called “hot” and “cold” crypto wallets are also part of the guidelines.

Since the commission appears to have no intention of establishing special legislation on the crypto sector, but aims to focus on protecting consumers and preventing money laundering, its regulatory approach should give the local crypto sector room for further development and innovation.

Apart from the product listing and removal review procedure, which may have a greater effect on the sector, other policies such as information disclosure, asset segregation and anti-money laundering are all basic requirements that companies in the sector should implement.

Another reason the commission does not want to act as a comprehensive regulatory body is that it is not easy to govern the crypto sector, let alone require the cooperation of offshore service providers or exchanges to comply with Taiwan’s regulations.

Overall, it is welcome news that the regulator supports growth in Taiwan’s crypto sector and wants to help build the necessary ecosystem here, as it is an opportunity for the sector to build public trust and push innovations towards the mainstream.

However, if the details of the guidelines, which are expected to be published by the third quarter of this year, are too cumbersome, it is likely to stifle the development of Taiwan’s crypto sector and push local investors towards offshore crypto platforms, which would be the opposite. to the Commission’s original intention to protect consumers by drafting a regulatory framework.

Furthermore, as innovative blockchain applications and non-fungible tokens continue to emerge, the regulator must retain the flexibility of developments in the sector and allow it to continue moving forward.

While it is not an option for the commission to do everything at once, it must at least reserve the power to inspect domestic crypto platforms when things go wrong. It must also work with crypto firms to establish a consumer protection mechanism.

At the same time, the commission must ask foreign firms to comply with Taiwan’s consumer protection and economic regulations. Most importantly, it must continue to assess and adjust its regulatory measures on a rolling basis to ensure the sector’s long-term development.