Financial Technology Regulatory Perspectives Seminar Held Grandly
The Asia FinTech Alliance (AFA) and the Taiwan FinTech Association (TFTA) jointly held an online seminar this morning (25th), themed “Regulatory Perspectives on FinTech Innovation in Taiwan.” The event invited Hu Zehua, Director of the Financial Market Development and Innovation Department of the Financial Supervisory Commission (FSC), and Huang Zhonghao, Director of the Securities and Futures Bureau of the FSC, to discuss Taiwan’s financial technology strategy, regulatory progress, and the role of regulatory agencies in promoting innovation.
Q&A Session
The event attracted more than 100 attendees, including many domestic and international industry participants. During the Q&A session, they raised various topics, such as the regulation of stablecoins and views on cross-border payments.
Q: Do stablecoins such as USDT or USDC need to be registered in Taiwan? Do they need to hold reserves in Taiwanese financial institutions?
According to the draft proposal, stablecoins issued outside of Taiwan do not need to hold reserves in Taiwan, but stablecoins issued within Taiwan must store their reserves in local Taiwanese financial institutions. In addition, stablecoins issued and circulating in Taiwan must obtain prior approval from the FSC and the central bank and can only be pegged to fiat currencies.
For overseas stablecoins that are already circulating globally, regulators will evaluate whether the regulatory requirements in other countries are similar or equivalent to those in Taiwan. If they meet the conditions, they will be allowed to trade in the local market.
Huang Zhonghao stated that Japan’s approach is quite similar to Taiwan’s current concept, allowing stablecoins such as USDT and USDC to trade in the local market, but requiring approval or recognition from regulatory authorities.
In simple terms, it is not the case that stablecoins like USDC or USDT need to proactively apply for approval to trade in Taiwan. Instead, the service providers offering trading services must obtain acceptance or approval from regulatory authorities before listing 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?
Regarding the regulatory approach, Huang Zhonghao stated that before the introduction of specialized regulations, the current approach is more principle-based, offering general principles and guidance. However, with the implementation of new regulations, more rule-based regulation will be adopted, similar to the supervision of financial institutions or securities firms.
On how to balance market development with consumer protection, Huang Zhonghao emphasized that this issue is a challenge for all regulators. Taiwan is strengthening its regulation but is also aware that some businesses may withdraw from the market due to the perceived high legal costs or responsibilities. The FSC is closely monitoring how to protect investors while not stifling the development of the cryptocurrency market.
Furthermore, at present, Taiwan’s regulation only applies to services offered to Taiwanese clients or activities conducted within Taiwan. Online service providers may temporarily not be regulated by Taiwanese laws if they do not conduct specific activities such as solicitation, advertising, or setting up websites in Taiwan. However, the boundary on this issue is still under observation and discussion.
Q: Will there be an RWA exchange in the future? Can you elaborate on the relevant policies or regulations?
Hu Zehua stated that there are indeed plans to establish an RWA trading platform, which will also serve as a trading platform, clearing platform, and RWA custody service provider.
However, from a regulatory perspective, this multi-functional platform may pose risks. Therefore, Taiwan may prefer an independent third-party organization to operate the RWA exchange to ensure credibility. Currently, the Taiwan Stock Exchange is researching the feasibility of referencing the Swiss SDX RWA exchange.
As for RWA regulations, they depend on the underlying assets. If the underlying assets are securities such as bonds or mutual funds, they must comply with securities trading laws. If they are other types of assets, such as spot commodities (e.g., wine or gold), they may involve other laws or regulations outside the FSC’s jurisdiction.
Q: Will payment companies that use stablecoins for cross-border payments be regulated by the FSC?
Huang Zhonghao stated that there are currently no strict restrictions on customers using stablecoins such as USDT for cross-border payments on websites. However, the payment function of stablecoins is under high scrutiny by regulatory authorities, including the central bank, and may be subject to additional judgments in the future depending on specific circumstances.
Hu Zehua also responded that the reason for including stablecoins in the Virtual Asset Service Providers (VASP) Bill is because the FSC believes that stablecoins will be a good tool for connecting the physical world and the virtual world. In the future, stablecoins may also be considered for settling RWA assets. However, since RWA is currently not included in the definition of virtual assets, RWA regulation still depends on whether its underlying assets are securities.
Q: Will the FSC avoid allowing global players to enter Taiwan to protect local participants, or will the FSC remain open to more choices for Taiwanese users as long as they meet the key regulatory requirements?
Huang Zhonghao responded, “We adopt an open attitude and welcome any foreign operators to enter the Taiwanese market as long as they comply with the same regulations as local operators in Taiwan.”
However, Huang Zhonghao also pointed out that some large operators conduct partial transactions on global platforms, which may raise concerns within the FSC about abnormal activities on overseas platforms. In addition, some wallet projects may also be managed or outsourced by foreign organizations to their global wallet systems. Therefore, if these international operators 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, first highlighted Taiwan’s active promotion of FinTech development strategies and progress, with the core concepts of “co-learning, co-creation, and co-prosperity.” Through measures such as regulatory sandboxes, promoting industry-government-academic collaboration, exploring the tokenization of physical assets, advancing digital financial innovation, and planning a FinTech development blueprint, Taiwan is committed to becoming a leading FinTech hub in Asia.
Co-learning:
The FSC has launched educational programs for internal staff to ensure they fully understand emerging technologies and business models. At the same time, cross-institutional courses have been set up 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: the business trial and innovation experiment. The scope of the business trial program has been expanded to allow financial institutions to conduct tests without violating self-regulatory norms and administrative rules. A large number of applications have been received, and several tests are currently underway.
Hu Zehua stated that the future plan is to promote the second phase of expansion, allowing tests even in situations where there may be conflicts with legally authorized FSC regulations. The innovation experiment program will also undergo significant improvements, including simplifying processes, extending transition periods, and expanding the testing scope to include pure technological innovations.
Co-prosperity:
The FSC actively promotes cooperation. By issuing guidelines for FinTech patent licensing, it encourages financial institutions to license their intangible assets to other institutions, promoting technology dissemination. In addition, the Financial Technology Industry Alliance was established in February this year to gather the strength of industry, government, and academia to jointly promote research and development, cross-industry cooperation, new business models, and FinTech investment funds.
Furthermore, Taiwan is actively exploring the possibility of tokenizing physical assets (RWA), including tokenized deposits and the issuance of central bank digital currency (CBDC). The RWA tokenization working group is expected to complete the proof of concept (POC) application by the end of September this year. If the POC results are positive, further adjustments to relevant policies and regulations may be promoted.
Next Steps in Taiwan’s Regulation
Huang Zhonghao, Director of the FSC’s Securities and Futures Bureau, delved into Taiwan’s journey in virtual asset regulation, which started with anti-money laundering (AML) regulations and gradually developed into the establishment of a registration system for virtual asset service providers (VASPs). Taiwan is about to introduce specialized laws to provide clear definitions and classifications of virtual assets, especially setting strict regulations for the issuance and trading of stablecoins, demonstrating Taiwan’s commitment to embracing financial innovation while placing high importance on consumer protection and market order.
Huang Zhonghao pointed out that global regulators are strengthening their supervision of cryptocurrency activities, and Taiwan is closely monitoring international standards and regulatory developments in other countries, adopting a balanced approach to include cryptocurrency activities within the regulatory framework.
Taiwan’s virtual asset regulation can be divided into four stages:
- The first stage focuses on anti-money laundering (AML) regulations, bringing VASPs under the scope of financial institutions.
- The second stage promotes the establishment of a VASP association and releases related guidance to strengthen industry self-regulation.
- The third stage is the establishment of a registration system, requiring VASP operators to register with the FSC and comply with a series of regulations, including the cold wallet storage ratio for customer assets.
- The fourth stage involves the introduction of specialized virtual asset regulations, with a draft law being published today.
The new regulations will provide clear definitions and classifications for virtual assets, excluding utility tokens and non-fungible tokens (NFTs) that do not have speculative or payment functions. Crypto assets with financial instrument characteristics (such as STOs or tokenized funds) will be subject to existing securities and insurance regulations. Crypto assets pegged to fiat currencies will be classified as stablecoins. Stablecoins issued in Taiwan will require prior approval from the FSC, while overseas stablecoins (such as USDT) will need recognition from the FSC to trade on local platforms in Taiwan.
Other crypto assets that do not fall under financial instruments or stablecoins will be classified as general virtual assets, and decentralized finance (DeFi) and fully decentralized services will currently not be regulated.
The new regulations impose strict requirements on the issuance of stablecoins, including authorization, a ban on unproven stablecoins being listed for trading, requiring sufficient reserves to be held in local Taiwanese financial institutions, strict asset segregation, regular audits, and compliance with central bank regulations.
Compared to the existing anti-money laundering framework, the new specialized regulations will establish a more rigorous licensing system and provide more detailed requirements on financial obligations, capital adequacy ratios, and other operating funds, similar to the regulation of securities firms.
Finally, Huang Zhonghao emphasized that the new regulations will strengthen legal responsibilities for market manipulation and other illegal activities. The FSC will continue to monitor global regulatory frameworks and strive to achieve a balance between innovation and protection.