Are Taiwan’s New AML Regulations Good for the Crypto Industry?
By Serra Angel Wei, Founder & CEO at Aegis Custody
Taiwan’s Financial Services Commission (FSC) announced in April that cryptocurrency exchanges and other virtual asset platforms would be included in the Money Laundering Control Act (MLCA) starting July 1 of this year. It’s a move that closely follows the country’s Executive Yuan declaring that such exchanges and trading platforms would be considered “virtual currency platforms” under the MLCA and precedes the upcoming release of the Financial Action Task Force’s (FATF) guidelines that detail the prevention of money laundering and terrorist financing in the global virtual asset industry.
The big question in the minds of observers is whether these regulations will have a positive or negative effect on Taiwan’s nascent crypto industry. Some are wary of regulations, pointing to a potential stifling of innovation, while others welcome the news as an important part of the evolution of the industry in Taiwan.
I would argue that this regulation is a necessary step to remain compliant with globally accepted regulations, ensure sound KYC, AML and CTF processes are in place, and lay the groundwork for future innovation in the space. This is what will attract and keep investors using Taiwanese exchanges and trading platforms.
A few steps behind but following the global trend
In other countries, regulation has been in place for quite a while. From as early as 2017, the U.S. Internal Revenue Service (IRS) has been conducting KYC and AML checks for both exchanges and trading parties. Singapore and Switzerland have also played a leading regulator role, as has the FATF.
Taiwan’s FSC, on the other hand, has remained a few steps behind. Taiwan is an island strong in trade with a well-developed cross-border financial transaction system. As virtual assets become mainstream and accepted as legitimate investment instruments and even trading currencies, regulation is inevitable. If the country’s regulation did not align with global regulation, it would turn foreign investors away and encourage local investors to use offshore platforms.
One often-overlooked positive of the upcoming AML regulations is it’s a sign that the industry is being taken seriously. This will likely result in a more active and supportive approach from the FSC and more government focus on the business opportunities created by virtual assets. There will also be better protections for everyone involved. As we all know, cryptocurrency and virtual asset trading is considered a high-risk activity. Sound regulations mean unscrupulous operators, both at home and abroad, can be prevented from defrauding the public.
Strict new requirements
The new AML regulations will have a significant impact on all stakeholders in the cryptocurrency and virtual asset space. Most affected, however, are the exchanges and trading platforms that will now be required to implement strict KYC and AML processes, including background checks, transaction monitoring and reporting.
As you can imagine, such requirements will be a major cost burden for these exchanges and trading platforms, as many have not built sufficient KYC and AML processes in the past because the cost of doing so was seen as prohibitive.
Many of these operators are upset. They view the regulations as not only an increase in costs, but also a potential loss of customers. The reality, however, is that not implementing KYC and AML processes will result in a loss of customers. Compliance attracts investors, not the other way around.
The best of both worlds is for operators to outsource KYC and AML to those providers who already have battle-tested processes in place.
An opportunity for custodian companies
Custodian companies can play an important role in bringing the Taiwanese crypto industry in line with the FSC’s new regulations. Their existing KYC and AML processes already stand up to regulatory scrutiny, so they can reliably verify the real names of the companies and individuals using exchanges and trading platforms. This also prevents much of the duplication resulting from each operator having to do its own due diligence.
Custodian companies also have the added advantage of the secure and compliant protection of assets in segregated trust accounts. Operators and investors can store their assets in isolation, fully protected under the custodial laws of their country, without worrying that a collapse of the custodian company will result in a loss of their assets.
There is no question that the FSC’s upcoming regulations are good news for the industry. Regulation is a necessary and inevitable step. It not only brings the country in line with global trends, but also ensures that the necessary consumer protections are in place to discourage fraud. Exchanges and trading platforms should see the regulations as an opportunity, not as needless bureaucracy that will end with significant expense and the loss of customers. Custodian companies can help ease the cost burden while providing compliant KYC and AML services. Together, we can build a sound ecosystem that attracts both local and foreign investors.
About the author:
Based in San Francisco, Serra Angel Wei is a cryptocurrency finance executive, investor and entrepreneur. With a blend of skills across traditional and blockchain-based finance, she has over 10 years of investment, research and private equity experience. She founded Aegis Custody in 2018 to solve the problem of illiquidity as a barrier to value creation.
Prior to Aegis Custody, Ms. Wei was a crypto investor at Passport Capital, where she helped build an Asian digital asset strategy desk to bridge the gap between cryptocurrency and institutional finance. Her particular strategic focus was on blockchain funds of funds (FoF) and direct ICO investments.
In 2015, Ms. Wei founded Serra Advisors LP , a boutique investment bank that provided cross-border investment advisory and M&A services for clients in China and the United States. The firm’s synergy VC/Growth Fund evolved from an advisory model to help Chinese companies gain a full-fledged US-based investment partner.
Before Serra Advisors LP, Ms. Wei was an equity research analyst in the technology group at Goldman Sachs. Whilst there, she worked for a US$5 billion crossover fund called QVT Financial LP and was responsible for research and investments in global technology sectors.
Ms. Wei holds an MBA from Stanford University Graduate School of Business.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.