Cryptocurrency laws and regulations in Taiwan
Already known globally as a high-technology manufacturing hub, Taiwan is making headway towards establishing itself as a centre for blockchain-based businesses and initial coin offerings(ICOs).
Although there are currently no specific laws or regulations for cryptocurrencies, the Taiwan government has expressed a positive attitude towards this nascent industry and aims to develop antimoney laundering rules specific to cryptocurrencies.
Self-regulation of ICOs
In a 2017 article, Taiwan legislator Jason Hsu explained that Taiwan’s position on ICOs may be described as “three no-policies”: the Taiwan government doesn’t encourage, not prohibit, and not take responsibility for it. With this background, on 22 May (known as Pizza Day in the blockchain community), 2 initiatives were launched to facilitate Taiwan becoming a “crypto island”, i.e. the Taiwan Parliamentary Coalition for Blockchain(TPCB) and Taiwan Crypto Blockchain Self-Regulatory Organization(TBSRO).
The TPCB, led by Jason Hsu, is a cross-party alliance with the aim of developing and deciding on a clear regulatory framework for the blockchain sector through education and building trust between regulators and cryptocurrency industry players.
Legal classification of cryptos
In 2013, the Financial Supervisory Commission(FSC) and Central Bank of Taiwan(CBT) announced that Bitcoin would be classified as a commodity, rather than a currency. The FSC’s position for other cryptocurrencies is that they may be “securities” subject to the Taiwan Securities Exchange Act(SEA).
According to article 6 of the SEA, securities is defined as any government bonds, corporate stocks, corporate bonds and other securities approved by the competent authority, i.e. the FSC.
The Taiwan Ministry of Finance clarified that all foreign stocks, corporate bonds, government bonds, beneficiary certificates, and other securities with nature of investment issued, offered or traded in Taiwan, shall be subject to the SEA.
In other words, similar to many other jurisdictions, the jurisdiction of the issuer is irrelevant to the determination of whether the instrument is a security and any security tokens issued, offered or traded in Taiwan will be subject to the SEA.
The FSC announced in 2017 that it would follow the approach of the US Securities Exchange Commission and determine the classification and legal status of virtual tokens on a case-by-case basis.
While there has been no Taiwan court cases specifically determining whether virtual tokens are securities, the Taiwan High Court in 2011 adopted the Howey test, developed by the US Supreme Court in the 1946 case SEC Howey, to determine whether foreign investment contracts are securities.
The Howey test was referred to, and also applied by, the Taiwan District Court in a 2014 case in determining that limited partnership interests in a partnership also constitute securities.
Given this trend in Taiwan courts, we can except that the Howey test will similarly be used in determining whether virtual tokens are securities to be regulated by the SEA and subject to the FSC’s oversight.
It is the authors’view that the FSC will likely place a strong consideration on Financial Market Supervisory Authority’s(FINMA) guidelines in determining its future approach regarding token classification.
Additionally, based on past trends and that most of Taiwan’s financial regulations are developed from the regulations of the US Security Exchange Commission(SEC), the attitude of the SEC toward crypto currency will also likely affect the Taiwan government’s view toward ICOs.
As with other jurisdictions, once a token is classified as a security token, the offering and issuance of the token will be subject to the SEA regulations for public offerings in Taiwan, unless it qualifies private placement exemption.
Financial Supervisory Commission (FSC)