Financial Technology Regulatory Perspectives Seminar Held Successfully
The Asia FinTech Alliance (AFA) and the Taiwan FinTech Association (TFTA) jointly held an online seminar this morning (25th) on the theme “Regulatory Perspectives on FinTech Innovation in Taiwan”. The seminar featured discussions on Taiwan’s FinTech strategy, regulatory progress, and the role of regulatory bodies in promoting innovation. The event invited Hu Zehua, Director of the Financial Markets Development and Innovation Department of the Financial Supervisory Commission (FSC), and Huang Zhonghao, Head of the Securities and Futures Bureau of FSC.
Q&A Session
The event attracted over 100 participants, including numerous domestic and international industry players. During the Q&A session, attendees raised various topics including stablecoin regulation and cross-border payment perspectives, among others.
Q: Should stablecoins like USDT or USDC be registered in Taiwan? Is it required for financial institutions in Taiwan to hold reserves for these coins?
A: According to the draft regulations, stablecoins issued outside Taiwan do not need to hold reserves in Taiwan, but stablecoins issued within Taiwan must store reserves in local financial institutions. Additionally, stablecoins issued and circulated in Taiwan must obtain prior approval from the FSC and the Central Bank and can only be pegged to fiat currencies.
For overseas stablecoins already circulating globally, Taiwan will evaluate whether the regulatory requirements in other countries are similar or equivalent to those in Taiwan. If the conditions are met, trading will be allowed in the local market.
Huang Zhonghao mentioned that Japan’s approach is quite similar to Taiwan’s current concept, allowing stablecoins like USDT and USDC to be traded in the local market, but regulatory approval is required.
In simple terms, it is not necessary for stablecoins like USDC or USBC to proactively apply for approval to trade in Taiwan. Instead, service providers offering trading services must obtain acceptance or approval from regulatory bodies to list these overseas stablecoins.
Q: How can a balance be struck between supporting industry development and maintaining an open competitive market, so that users can access platforms with different advantages?
A: Regarding the regulatory approach, Huang Zhonghao explained that, before the release of specific regulations, the current focus is on principle-based regulation, offering guidelines and principles. However, with the implementation of new regulations, the approach will become more rules-based, similar to the regulation of financial institutions or securities firms.
On how to balance market development with consumer protection, Huang emphasized that this is a challenge for all regulators. Taiwan is strengthening regulation but has also noticed that some industry players are withdrawing from the market due to the high legal costs or responsibilities. The FSC is closely monitoring how to protect investors without stifling the development of the cryptocurrency market.
Additionally, at present, Taiwan only regulates services provided to Taiwanese customers or activities conducted within Taiwan. If there are no activities such as solicitation, advertising, or setting up websites in Taiwan, online service providers may not be subject to Taiwanese laws, but the boundaries of this issue are still under observation and discussion.
Q: Will there be an RWA exchange in the future? Can you explain the relevant policies or regulations?
A: Hu Zehua stated that there are indeed plans to establish an RWA trading platform, which will serve as a trading platform, settlement platform, and RWA custody service provider.
However, from a regulatory perspective, such a multifunctional platform might pose risks. Therefore, Taiwan may lean towards having an independent third-party institution operate the RWA exchange to ensure credibility. The Taiwan Stock Exchange is currently studying the feasibility of referencing the Swiss SDX RWA exchange.
As for RWA regulations, it will depend on the underlying assets. If the underlying assets are securities like bonds or mutual funds, they will need to follow securities trading laws. If they are other types of assets, such as spot commodities (e.g., wine or gold), other laws or regulations may apply and will not fall under the jurisdiction of the FSC.
Q: Will payment companies using stablecoins for cross-border payments be subject to FSC regulation?
A: Huang Zhonghao stated that there are currently no strict restrictions on customers using stablecoins like USDT for cross-border payments on websites. However, the payment function of stablecoins is under close attention from regulatory bodies, including the central bank, and additional judgments may be made in the future based on specific circumstances.
Hu Zehua also responded, explaining that the inclusion of stablecoins in the Virtual Asset Service Providers (VASP) Act is due to the FSC’s belief that stablecoins will serve as a good tool to bridge the real world and the virtual world. In the future, stablecoins may also be considered for settling RWA assets. However, RWA has not yet been included in the definition of virtual assets, so RWA regulation will still depend on whether the underlying assets are securities.
Q: Will the FSC avoid allowing global players into the market to protect local participants, or will they maintain an open attitude as long as key regulatory requirements are met, allowing Taiwanese users more choices?
A: Huang Zhonghao responded, “We take an open approach and welcome any foreign players to enter the Taiwanese market, provided they comply with the same regulations as Taiwanese companies.”
However, Huang also pointed out that some large players might conduct certain trades on global platforms, which could raise concerns for the FSC regarding unusual activities on overseas platforms. Additionally, some wallet projects might be hosted or outsourced to global wallet systems by foreign organizations. Therefore, if these international players wish to develop business in Taiwan, the FSC may impose additional requirements in the future.
Three Core Concepts Driving FinTech Development
At the joint online seminar, Hu Zehua, Director of the FSC’s Innovation Department, highlighted Taiwan’s proactive strategy and progress in promoting FinTech development. With the core concepts of “Co-learning, Co-creation, and Co-prosperity”, Taiwan is committed to becoming a leading FinTech hub in Asia through measures like regulatory sandboxes, fostering industry-government-academia collaboration, exploring tokenization of physical assets, promoting digital financial innovation, and planning a blueprint for FinTech development.
Co-learning:
The FSC has launched educational programs for its internal staff to ensure they fully understand emerging technologies and business models. Additionally, cross-agency courses have been established to promote communication and learning between financial institutions, regulatory agencies, and self-regulatory organizations.
Co-creation:
Taiwan has launched two policy tools similar to regulatory sandboxes: Business Trials and Innovation Experiments. The Business Trial program has expanded its scope, allowing financial institutions to conduct tests without violating self-regulatory standards or administrative rules. Several applications have been received, and numerous tests are currently underway.
Hu Zehua noted that the second phase of expansion will allow tests even in cases where they might conflict with FSC regulations authorized by law. The Innovation Experiment program will also undergo significant improvements, including simplifying processes, extending transition periods, and expanding the scope of testing to pure technological innovations.
Co-prosperity:
The FSC is actively promoting collaboration. By issuing guidelines for FinTech patent licensing, it encourages financial institutions to license their intangible assets to other entities to foster technology proliferation. Moreover, a FinTech Industry Alliance was established in February this year to bring together the strengths of industry, government, academia, and research to promote R&D, cross-industry collaboration, new business models, and FinTech investment funds.
Additionally, Taiwan is actively exploring the potential of tokenizing physical assets (RWA), including tokenized deposits and issuing Central Bank Digital Currencies (CBDC). The RWA tokenization task force plans to complete the Proof of Concept (POC) application by the end of September this year. If the POC results are positive, further policy and regulatory adjustments may be promoted.
What’s Next for Taiwan’s Regulation?
Huang Zhonghao, Head of the FSC’s Securities and Futures Bureau, elaborated on Taiwan’s journey in virtual asset regulation, starting from anti-money laundering (AML) regulations and gradually evolving into establishing a registration system for Virtual Asset Service Providers (VASP). Taiwan is set to introduce a dedicated law that will clearly define and categorize virtual assets, with strict regulations for the issuance and trading of stablecoins, demonstrating Taiwan’s commitment to embracing financial innovation while safeguarding consumer protection and market order.
Huang emphasized that global regulators are intensifying their oversight of cryptocurrency activities, and Taiwan is closely following international standards and regulatory developments. The country is adopting a balanced approach to incorporate cryptocurrency activities into its regulatory scope.
Taiwan’s virtual asset regulation can be divided into four stages:
- Phase one: AML-based regulation, bringing VASPs into the financial institution scope.
- Phase two: Promoting the establishment of a VASP guild and issuing relevant guidelines to strengthen industry self-regulation.
- Phase three: Establishing a registration system, requiring VASP operators to register with the FSC and adhere to a series of regulations, including the ratio of client assets stored in cold wallets.
- Phase four: The introduction of dedicated virtual asset regulations, with the draft regulation announced today.
The new regulations will clearly define and categorize virtual assets, excluding utility tokens and non-fungible tokens (NFTs) that do not have speculative or payment functions.
Cryptographic assets with financial instrument characteristics (e.g., STOs or tokenized funds) will be subject to existing securities and insurance regulations. Crypto assets pegged to fiat currencies will be categorized as stablecoins. Stablecoins issued in Taiwan will require FSC approval, while overseas stablecoins (such as USDT) must obtain FSC recognition to trade on Taiwanese platforms.
Other crypto assets that are not financial instruments or stablecoins will be classified as general virtual assets. As for decentralized finance (DeFi) and fully decentralized services, they are currently not included in the regulatory scope.
The new regulations will impose strict requirements on the issuance of stablecoins, including the need for authorization, prohibition of unproven stablecoins being listed for trading, holding sufficient reserves in local Taiwanese financial institutions, strict asset segregation, regular audits, and compliance with central bank regulations.
Compared to the current AML framework, the new dedicated regulations will establish a stricter licensing system with more detailed provisions on financial requirements, capital adequacy ratios, and other operating funds, similar to the regulation of securities firms.
Huang Zhonghao concluded by emphasizing that the new regulations will also strengthen legal responsibilities for market manipulation and other illegal activities. The FSC will continue to monitor international regulatory frameworks and strive to strike a balance between innovation and protection.