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Digital currency regulation in Taiwan

Digital currency has been around since currency account balances were first stored on digital machines (i.e., computers). Later, banks effected electronic transfers of this digital currency. Credit card and debit cards then allowed consumers to make purchases using digital currency. Early digital currency was digitized fiat currency issued by governments and held with and transferred among financial institutions and consumers. Over the past two decades, advances in technology have allowed currencies to be issued by organizations other than governments and transferred and held by organizations other than financial institutions.

As technology advances, market participants are increasing in number and becoming more decentralized. Financial market regulators are struggling to keep pace with the financial products and services that technological innovation is making possible.

Some regulators have moved more swiftly than others to address market changes resulting from this technological innovation. Although Taiwan’s financial and banking regulators have not moved as rapidly as, say, their counterparts in Singapore, in recent months an encouraging trend is taking shape. Possibly taking cues from the Monetary Authority of Singapore, Taiwan appears to be consolidating the regulation of digital currency related issues under a single regulatory body, the Financial Supervisory Commission (the “FSC”). Placing primary responsibility for the regulation of digital currencies in the hands of a central authority will likely result in a more comprehensive, cohesive regulatory landscape.

Recent legislative amendments to the Money Laundering Control Act (the “MLCA”) are already paving the way for the FSC to regulate cryptocurrency transactions more closely. Passed in November 2018, the amended MCLA states that platforms selling virtual currency (“VCP”) fall under the purview of the MCLA and shall be regulated as financial institutions. As the FSC is the primary regulator with respect to other financial institutions, it is expected that it will also oversee VCPs.

The FSC has already begun exerting its influence over virtual currency exchange by prohibiting Taiwan banks from entering into cryptocurrency transactions in which the identity of the e-wallet holder is unknown.

FSC Chairman Wellington Koo recently announced that the FSC will also be moving forward to provide guidance on security token offerings. Mr. Koo promised such guidance by the end of June of this year.

In addition to regulation of cryptocurrencies, the trend towards a more unified, consolidated approach to digital currency regulation is evident in the electronic payment area. Currently, electronic stored value cards (電子票證) are regulated separately from other forms of electronic payment (電子支付). The FSC expects to send a draft comprehensive electronic payment law to the Legislative Yuan as early as March of this year. This draft law will place the regulation of all forms of electronic payment (including electronic stored value cards) under the same regime.

Taiwan is proceeding cautiously into the digital currency world. However, recent announcements by the FSC indicate that under their guidance the pace of change may quicken in 2019. We will continue to monitor the developments in this area closely.

For more information, please contact Gregory Buxton at gbuxton@winklerpartners.com.

Jeremy Olivier also contributed to this update.

Winkler Partners Recognized by Legal 500, CorporateINTL, Asialaw, Chambers

Winkler Partners is pleased to be honored by the Asia-Pacific Legal 500, CorporateINTL, Asialaw Profiles, and Chambers for its work in several key practice areas.

The Asia-Pacific Legal 500 ranked Winkler Partners in the top tier for Employment, praising its “intelligent and likeable team”. The Legal 500 also ranked the firm in second tier for Dispute Resolution (recommending partner Chen Hui-ling), Insurance, Intellectual Property (“highly regarded for trade mark and copyright work…Peter Dernbach and Christine Chen are excellent”), Projects and Energy, and TMT (headed by Steven Hanley). Winkler Partners was also recommended for its Corporate and M&A practice.

European business monthly CorporateINTL named Winkler Partners “Advisory Firm of the Year in Taiwan” 2010 for Dispute Resolution, Litigation, and Insolvency/Bankrupty. The firm was also short listed in the Corporate, Employment and Intellectual Property fields.

In related news, Asialaw Profiles 2011 recommends Winkler Partners for Dispute Resolution (“a very talented law firm”), Intellectual Property (“understands Taiwan’s market well”), and IT Telco & Media (Steven Hanley “comes highly recommended”).

The UK-based legal directory Chambers ranked Winkler Partners for its work in Corporate/M&A (“…well placed to work with international corporates doing business in Taiwan.”) and Intellectual Property (“…has long-standing relationships with a number of large international companies.”). Chambers also for the first time ranked Winkler Partners in Dispute Resolution (“This firm has proven to be wonderful and we have been very impressed.”) and Employment (“…worked alongside some of the world’s most renowned law firms”).

New Financial Reporting Requirements for Taiwan Insurers

The Financial Supervisory Commission has released amendments to two parallel sets of directives regulating financial reporting requirements for life insurers and asset insurers. A publicly report insurer may now rely on the professional judgment of its accountant to determine whether companies in which the insurer has invested must also be audited by the insurer’s accountant.

Previously, a relatively rigid set of criteria such as capitalization or revenue of the invested company triggered the auditing requirement. Winkler Partners believes that this new requirement may actually cause greater caution and concomitant scrutiny of financial records by Taiwanese CPAs because the emphasis on professional judgment opens up an increased risk of malpractice or administrative liability for accountants. To learn more about medical malpractice lawsuits, read more here.

In addition, insurers are now required to report precise figures for compensation of all directors, supervisors, and CEOs (general manager in Taiwan nomenclature) under certain circumstances. These circumstances include a capital adequacy rate of less than 200%, after-tax losses for two consecutive years, or failure to increase capital after being ordered to do so by the Commission. The insurer must also report exact compensation of individual director, supervisor, or CEO if the individual pledges more than 50% of the shares she holds or does not hold a minimum number of shares over a three-month period. These new requirements take effect retrospectively as of 1 January 2008.

Previously, all insurers were required to disclose compensation ranges for directors, supervisors, and CEOs by class rather than individual. If the circumstances listed in the preceding paragraph do not apply to an insurer, the insurer may continue to report compensation ranges, rather than exact figures. The new requirements are part of a general trend by the Commission to regulate the activities and qualifications of the directors, supervisors, and officers of financial institutions and listed companies.

The new amendments are to the Directions Governing the Preparation of Financial and Business Reports by Non-life Insurance Industry and the Directions Governing the Preparation of Financial and Business Reports by Life Insurance Industry.

For more information on the new directives or the Winkler Partners insurance practice, please contact Chen Hui-ling.

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The US-based Motion Picture Association has set up a NT$ 1 million war chest…Download Full PDF

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