China | Philippines | South Korea | Taiwan | U.A.E

Cryptocurrency-related activities have received little tolerance from the Chinese government. Initial coin offerings (ICO) were banned in China in September 2017. Exchange platforms that traded cryptocurrencies or provided facilitation services were also ordered to be closed following the crackdown on ICOs. Many exchanges chose to relocate to jurisdictions that are more favourable to cryptocurrencies than China. However, organizers and promoters of overseas ICOs and exchanges may not be free from the long arm of jurisdiction of Chinese criminal laws if those persons are Chinese citizens, or if Chinese investors have invested in overseas ICOs or traded cryptocurrencies on overseas exchanges.

Shen Wenhao
Partner of JunZeJun Law Offices in Beijing
Tel: +86 10 6652 3311

Interestingly, it is not illegal to hold Bitcoins and other cryptocurrencies, or even to buy or sell them in China. The Chinese government also encourages the development and application of blockchain technology, but has made it clear that blockchain technology must service the real economy.

China’s policy on ICOs

On 4 September 2017, seven government agencies of China, i.e. the People’s Bank of China (PBOC), the Central Cybersecurity and Information Technology Lead Group of the Communist Party of China, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, China Banking Regulatory Commission, China Security Regulatory Commission and China Insurance Regulatory Commission, jointly issued the Notice regarding Prevention of Risks of Token Offering and Financing. The notice banned all ICOs in China and ordered that any organizations or individuals who had previously completed an ICO to make arrangements including the return of token assets to investors to protect investor rights.

To understand this harsh attitude, we have to look at the big picture of China’s economy and financial market. In the past 20-plus years, China has enjoyed rapid economic development which, many believe, came at the cost of high leverage in the financial system and accumulation of financial risks. In the past two years, control of financial risks and stabilization of the financial system has become the top priority of the PBOC. Before ICOs, internet platforms providing P2P loans and micro lending had been targeted by the PBOC and other financial regulators, and are still in the process of cleansing and rectification. It is no surprise that ICOs, due to the sheer increase both in numbers and the amount of funds raised, as well as some socially chaotic events caused by ICOs, received the death sentence from the PBOC.

ICOs in the eyes of the PBOC

In the notice, an ICO was described as a process by which fundraisers distribute digital tokens to investors who make financial contributions in the form of cryptocurrencies such as Bitcoin and Eethereum. The notice further pointed out: “By nature, it is an unauthorized and illegal public financing activity, which involves financial crimes such as illegal distribution of financial tokens, illegal issuance of securities and illegal fundraising, financial fraud and pyramid scheme.”

Among the crimes mentioned in the notice, illegal fundraising, which generally means raising funds without government approval, is a crime that has been widely used in cracking down on undesirable financial activities, as the scope of the crime can be interpreted very broadly.

It should be noted that even ICOs outside China are not completely safe if they attracted Chinese investors. According to article 6 of the PRC Criminal Law, if any of the criminal activities or results of such activities occurred in China, the crime is deemed to have occurred in the territory of China. If the ICO involved financial crimes based on Chinese criminal law standards, the promoters or organizers of those ICOs may potentially be subject to Chinese criminal liabilities if they are Chinese citizens. Even if they are not Chinese citizens, if overseas ICOs attracted Chinese investors, they may still potentially be subject to Chinese criminal liabilities.

China’s policy on exchanges

The notice also targeted cryptocurrency exchanges and ordered that any so-called fundraising and trading platforms must not:

  • Offer exchange services between fiat currency, tokens and virtual currencies;
  • Buy or sell tokens or virtual currencies, or buy or sell virtual currencies as a central counterparty (CCP); or
  • Provide price determination or information intermediary services for tokens or virtual currencies.

In the several months following the notice, most of the cryptocurrency exchanges closed down their platforms in China but continued exchange business through platforms registered in foreign jurisdictions that seemed more favourable to the exchange business than China.

They also made adjustments to their business models. To avoid direct confrontation with Chinese monetary authorities, some exchanges no longer provided exchange services between fiat currency and cryptocurrencies. Some chose to introduce a new token (such as USDT, QC, etc.) to their platforms, which have value equivalent to the value of fiat currency, as an intermediary between fiat currency and cryptocurrency. Investors may use fiat currency to buy this new token and then use this new token to buy cryptocurrency.

Further, many exchanges launched peer-to-peer trading platforms that support direct transactions between investors without the exchange acting as a CCP. On those platforms, one investor can buy cryptocurrencies from another investor and pay the seller via bank transfers, Alipay or Wechat pay.

These modified business models are not entirely safe from Chinese criminal law perspective. Although major exchanges have been relocated overseas, they may still be subject to Chinese criminal liabilities. If the founders or managers of an exchange are Chinese nationals, or they make decisions in China to operate the overseas exchange, or the investors are in China, or if the exchange performs prohibited functions, Chinese justice authorities will still have jurisdiction over those persons.

Access to overseas exchanges

To further prevent Chinese investors from purchasing and trading cryptocurrencies on overseas exchanges, China has blocked internet access to the websites of some overseas exchanges. According to Chinese law, no person should use the internet to view information that violates Chinese laws and regulations.

Those who access overseas exchanges via virtual private networks (VPNs) may potentially face risks if the exchanges contain prohibited information. In January 2017, the Ministry of Industry and Information Technology ruled that only authorized VPNs could be used in China. The sale or provision of VPN services by companies or individuals without telecom licences issued by Chinese telecom authorities became illegal.

In view of China’s harsh attitude towards ICOs and cryptocurrency exchanges, some may assume that it would be illegal for Chinese to hold or trade Bitcoins or other cryptocurrencies.

This is not correct. There is no PRC law or regulation that prohibits Chinese investors from holding cryptocurrencies, or from trading cryptocurrencies.

This seems consistent with an early notice jointly issued by five Chinese government agencies, led by the PBOC, in 2013, which defined Bitcoin as a special virtual commodity, but not a currency. That notice also explicitly provides that Bitcoin does not have legal status as a currency and should not be circulated and used in the market as a currency. This should still be the position taken by the PBOC today.

Article 127 of the General Rules of the Civil Law of China, which took effect on 1 October 2017, provides that: “In case laws have provisions on the protection of data and internet virtual properties, such laws should be complied with.”

Some experts believe that this means that one of the basic laws in China recognizes the legal status of cryptocurrencies as virtual property.

Payments using blockchain

Senior officials of the PBOC have publicly encouraged the use of blockchain technology to improve the convenience, promptness and low cost of retail payments. In fact, the PBOC established its own Digital Currency Research Institute for the goal of issuing digital money. It should be noted, however, that China’s digital money would still be fully controlled by the central government, in contrast to the non-governmental nature of Bitcoin.

According to news reports, in December 2017, China Merchants Bank, Wing Lung Bank of Hong Kong, and Wing Lung Bank, Shenzhen Branch have successfully completed cross-border transfers of renminbi payments using blockchain technology. Many other banks have reportedly made experiments and even progress on the use of blockchain technology to improve their transaction systems.

Despite the ban on ICO and cryptocurrency exchanges, the PBOC and other government agencies have consistently shown great enthusiasm towards the application of blockchain technology for the goal of modernizing China’s financial systems and becoming a world leader in this new innovative technology.

In recent years, various guidelines and papers issued by the government have endorsed blockchain technology and even placed blockchain technology in the same category of big data and artificial intelligence.

However, the endorsement of blockchain technology is not without reservation. In the view of the PBOC, blockchain technology and digital currency should be researched for the goal of better service to the real economy.


6/F South Tower, Financial Street Center, No.9 Financial Street, Xicheng District, Beijing 100033, PRC



China | Philippines | South Korea | Taiwan | U.A.E

The Philippines is one of the fastest-growing economies in Southeast Asia. In 2017, the World Bank projected the Philippines to be the world’s 10th-fastest growing economy, with GDP growth at 6.7% – markedly higher than its 3.68% average annual GDP growth rate between 1982 and 2016.

Aida Araceli G Roxas-Rivera Senior Partner at Cruz Marcelo & Tenefrancia in Manila Tel.: +63 2810 5858 Mobile no: +63 9178569651
Aida Araceli G Roxas-Rivera
Senior Partner at Cruz
Marcelo & Tenefrancia in Manila
Tel.: +63 2810 5858
Mobile no: +63 9178569651

The Philippine economy is built on remittances from overseas Filipino workers, who contributed US$33 billion to the country’s US$400 billion GDP in 2017. However, the country’s financial literacy is ironically low. Access to financial services is not universal, with the Bangko Sentral ng Pilipinas (BSP), the country’s central bank and financial regulator, estimating that 10% of local government units remain unbanked. Despite being the third-largest country for remittance inflow, Philippine remittance costs are high compared to the global average estimated by the World Bank, at 7.4% for every US$200.

It is in this context that cryptocurrency usage in the Philippines has grown. Yet the volatility inherent in a decentralized currency has given rise to concerns that cryptocurrency may be used to defraud financially illiterate Filipinos. Moreover, that cryptocurrencies were designed precisely to circumvent global governmental regulation poses serious challenges for a country that has only recently skirted the money laundering blacklist and is beset by terrorism-financing propensities.

Hence, Philippine regulators are faced with a unique quandary arising from a conflict between, on one hand, allowing access to financial services through cryptocurrencies and, on the other, preventing the Philippines from becoming a hotbed of money laundering, terrorism financing and cybercrime. Notwithstanding the essential difficulties in regulating cryptocurrencies, Philippine regulators have embarked on initiatives to balance these policies.

Regulation as investment contracts

As of this article being written, the Securities and Exchange Commission (SEC), which regulates the licensing of domestic and foreign corporations, has not released any rule specifically concerning virtual currencies. However, the SEC’s Enforcement and Investor Protection Department (EIPD) has expressed its position that virtual currencies fall within the definitions of “security” and “investment contract” in the Securities Regulation Code (SRC), and so are under the regulatory jurisdiction of the SEC. On 8 January 2018, the EIPD released an advisory that virtual currencies must be registered and subjected to disclosure requirements under the SRC before they are sold to the general public.

 Paolo S Tamase Associate at Cruz Marcelo & Tenefrancia
Paolo S Tamase
Associate at Cruz Marcelo
& Tenefrancia in Manila
Tel: +63 2810 5858
Mobile: +63 9175920650

Consistent with this, the SEC issued a Cease and Desist Order on 23 January 2018 in a matter of Black Cell Technology Inc et al against four companies for selling and/or offering for sale Krop Tokens or KropCoins, both of which are virtual currencies. On 2 March 2018, the SEC found that these virtual currencies were investment contracts that were not registered prior to their sale, and although Krop Tokens or KropCoins were issued from Hong Kong, these were still being offered and/or sold in the Philippines because they were accessible and made available to buyers in the Philippines via the internet.

On 10 April 2018, the EIPD issued a similar advisory for “cloud mining contracts”. Treating cryptocurrency as securities or investment contracts has serious regulatory implications. Registration of securities and investment contracts tediously involves the preparation of registration statements and prospectuses, publications in newspapers of general circulation, disclosure requirements, and multiple approval processes designed to protect the investing public. Once registered, these may only be sold by salesmen, brokers and agents who must also be registered with the said regulator. The violation of these requirements is criminal in nature, punishable by fines and/or imprisonment.

In any event, SEC officials have publicly confirmed that the regulator is drafting rules for virtual currencies and initial coin offerings (ICOs) to be released this year. The SEC is also reportedly looking into complaints and investigating companies conducting cryptocurrency transactions.

Virtual currency exchanges

Under the General Banking Law, the BSP has regulatory powers over the operations of finance companies and non-bank financial institutions performing quasi-banking functions, including remittance or transfer agents, money changers, or foreign exchange dealers. Because these entities may function as virtual currency (VC) exchanges by converting or exchanging cryptocurrency to fiat currency (or vice-versa), the BSP has issued circular No. 994 (2017) or the Guidelines for Virtual Currency Exchanges, which will apply to virtual currency exchanges that also operate as remittance and transfer companies, money changers, or foreign exchange dealers. “Virtual currency exchanges” used hereafter refers to those covered by BSP circular No. 994.

BSP circular No. 944 lays out various regulations that are now deemed incorporated as section 4512N of the Manual of Regulations for Non-Banking Financial Institutions (MORNBFI).

The MORNBFI now requires the registration of virtual currency exchanges upon compliance with the requirements for registration of remittance and transfer companies, money changers, or foreign exchange dealers. It also requires payment of registration and annual service fees corresponding to remittance agents. Virtual currency exchanges are also further required to maintain risk management and security control mechanisms to manage technology risks associated with virtual currencies, including an effective cybersecurity programme (if the VC exchange provides for wallet services for holding, storing and transferring virtual currencies) and an internal control system commensurate to the nature, size and complexity of their respective businesses. Notification and reportorial requirements, in the same form and manner as those required for remittance and transfer companies, money changers, or foreign exchange dealers are also imposed on VC exchanges.

More importantly, the MORNBFI also requires VC exchanges to transact only via direct check payments or direct credit to deposit accounts whenever a payout would amount to more than PHP500,000 (about US$10,000) or its foreign currency equivalent.

The MORNBFI also requires VC exchanges to register with the Anti-Money Laundering Council (AMLC). Notably, remittance and transfer companies, money changers and foreign exchange dealers are themselves subject to the Anti-Money Laundering Act (AMLA) as covered institutions, under which they are required to timely file reports for covered transactions (i.e. transactions involving a total amount in excess of PHP500,000 within one banking day) and suspicious transactions, as defined in the AMLA. VC exchanges are thus also subject to the AMLA’s know-your-customer and record-keeping requirements.

As of writing this article, BSP circular No. 944 is the only regulation of national application that specifically concerns cryptocurrencies.

Regulations for Virtual Currency Businesses in the Cagayan Special Economic Zone. While national regulators are concerned with restricting cryptocurrency trading and businesses, the Cagayan Special Economic Zone Authority (CEZA) has formulated rules permitting virtual currency businesses to operate in the Cagayan Special Economic Zone (Cagayan Ecozone), a special economic zone and free port established by law and located in the province of Cagayan in the northern part of the Philippines. In April 2018, the CEZA announced it will license 10 blockchain and virtual currency companies, which may then conduct cryptocurrency mining or ICOs, or operate an exchange within the Cagayan Ecozone, provided the exchange of money into virtual currency (and vice-versa) is done offshore.

The Cagayan Special Economic Zone and Freeport Financial Technology Solutions and Offshore Virtual Currency Business Rules and Regulations of 2018 (CEZA VC rules) regulate Financial Technology Solutions and Offshore Virtual Currency (FTSOVC) business-related activities within the Cagayan Ecozone, and were issued to, among other things, ensure that adequate safeguards are established and enforced to prevent these activities from being used for money laundering and other crimes, and digital financial fraud.

It must be emphasized that the cryptocurrency businesses licensed by the CEZA are not allowed to transact with clients in the Philippines, and licensees may thus provide FTSOVC services only to overseas clients. The extraterritorial destination of such services results in the inapplicability not only of BSP circular No. 994, but also the SRC, which requires registration only for securities that are sold or offered for sale or distribution in the Philippines.

The CEZA VC rules require FTSOVC businesses to secure special licences to operate as such entities, with registration requirements pertinently including an investment commitment in the Cagayan Ecozone amounting to at least US$1 million spread over two years, and the registration of foreign entities as financial technology solutions business enterprises, or offshore virtual currency exchanges in their respective home jurisdictions.

Licensees are also required to develop anti-money laundering and counter terrorism-financing rules, and maintain effective data privacy and cybersecurity programmes, and are subject to the inspection and audit authority of the CEZA. Each licensee is likewise subject to the CEZA’s inspection and audit authority, and must be connected to the CEZA’s Financial Technology Solutions Audit System and maintain records relating to its FTSOVC activities.

FTSOVC licences may have a maximum renewable term of 25 years, subject to suspension or revocation by the CEZA upon the grounds provided in the CEZA VC rules.

Overall, regulators remain cautious and have refused to endorse the use of cryptocurrencies as new stores of value and mediums of exchange. While this regulatory disposition is not expected to change soon, the approach taken by the CEZA shows that there are investment opportunities in this industry, especially if other special economic zones follow suit.

Cruz Marcelo & Tenefrancia


9, 10, 11 and 12 Floors, One Orion

11th Avenue corner University Parkway

Bonifacio Global City, Taguig City 1634



China | Philippines | South Korea | Taiwan | U.A.E

South Korea is one of the world’s most significant markets for blockchain technology companies. As of earlier this year, the Korean won (KRW) was the most frequently used currency for digital currency trading except for the US dollar. In the second half of 2017, more than 10% of Bitcoin trades around the globe were done in KRW.

Michael Kim
Lawyer at Kobre & Kim in Seoul
Tel: +82 2 369 1212; +1 212 448 1201

Despite the nation’s leading role in the digital currency markets, South Korea has struggled to implement meaningful regulatory and taxation measures for trading these currencies. In less than a year, South Korean authorities have changed their regulatory postures on numerous occasions, and the Korean judiciary and financial regulatory agencies remain misaligned in terms of establishing a cohesive regulatory stance.

Despite the lack of clarity, an overarching regulatory trend is becoming apparent: hostility toward initial coin offerings (ICOs) and exchanges, followed by increased co-operation between the government and digital currency organizations. The evolution of South Korean digital currency regulation will be one to watch, and promises to have a significant impact on the global digital currency markets.

A turbulent history

The digital currency buzz hit South Korea with gusto. In early 2017, Bitcoin was being traded at nearly the same price globally, but by the end of that year, it was traded at a dramatically higher price in South Korea than in the rest of the world. In a phenomenon dubbed the “kimchi premium”, South Korean digital currency traders were paying nearly US$8,000 more per Bitcoin and simultaneously had access to an arbitrage opportunity with potential gains of between 30% and 50%.

Daniel Lee
Lawyer at Kobre & Kim in New York
Tel: + 1 212 488 1200

In part because of these significant premiums, the South Korean digital currency market saw rampant misconduct, including mining Ponzi schemes, market manipulation and outright theft. On 20 December 2017, South Korean authorities indicted nearly two dozen people in connection with a digital currency mining Ponzi scheme operating under the name Mining Max, which swindled more than US$250 million from over 18,000 investors. Market manipulation, including spoofing (faking demand by placing large orders not intended to be filled) and wash trading (buying and selling one’s own order), became commonplace in the South Korean digital currency market. In April 2018, Korean police arrested the chief of Coinnest, a major South Korean exchange, alleging he embezzled tens of millions of dollars from customers’ accounts.

Hacking has also caused direct and significant financial damage on Korea’s exchanges. For instance, Youbit, a South Korean exchange, was hacked in both April and December, 2017. Youbit lost 4,000 Bitcoins in the first attack and had to file for bankruptcy after losing 17% of its assets in the second attack. Other exchanges such as Coinis and Bithumb have also faced hacking attacks. A cyber-attack on Bithumb, South Korea’s then-largest exchange, was blamed on North Korea by the South Korean government.

Furthermore, two large-scale hacking attacks have rocked major South Korean exchanges in June 2018 alone. On 11 June, a major South Korean exchange, Coinrail, was subject to a hacking attack, which wiped out 30% of its tokens. Investigations in the aftermath of the Coinrail hack revealed that the majority of digital currency exchanges in South Korea outside of the big three – Upbit, Bithumb, and Korbit – were operating without proper security measures and IT infrastructure. Yet on 20 June, just nine days after the Coinrail attack, Bithumb also announced that it suffered a hacking attack that cost it approximately US$35 million.

Regulatory response

These events have continued to spur the South Korean government toward digital currency regulation. In July 2017, lawmakers began preparing a set of bills to give digital currencies “legal grounds”. This positive sentiment was quickly overrun by the Financial Services Commission’s (FSC) proposal to ban ICOs, arguing that digital currency is not a means of exchange, nor a financial product. The FSC’s proposal never actually made it to legislation and the administration of the National Assembly did not implement the ICO ban, nor did it force companies to return ICO funds. It also continued to allow local investors to put money into foreign ICOs through 2018.

Nathan Park
Lawyer at Kobre & Kim
in Washington DC
Tel: + 1 202 664 1944

In the absence of legislative direction, South Korea’s courts have stepped in. In September 2017, the Suwon District Court invalidated the seizure of 216 Bitcoins because it was “not appropriate to confiscate Bitcoins as they cannot assume an objective standard value.” Following the prosecutor’s appeal in December 2017, the previous court’s ruling was reversed based on the idea that digital currencies have economic value because “Bitcoin can be changed into money through an exchange” and it can be used “as a means of payment through merchants”. On 30 May 2018, South Korea’s top court affirmed the appellate court’s decision, recognizing digital currency as an “asset with measurable value”.

A series of administrative actions this year has steered the digital currency market toward greater regulation while acknowledging its global prominence. On 30 January 2018, in South Korea’s first concrete administrative measure aimed at digital currency exchanges, FSC vice chairman Kim Yongbeom announced measures to ban anonymous trading on domestic exchanges, in addition to a complete ban on foreigners and minors trading through digital currency accounts.

Under these regulations, digital currency exchanges are required to share users’ transaction data with banks. Also, South Korean exchange users are now required to use bank accounts in their legal name that matches the name on their digital currency exchange account. In light of this announcement, many suspected that the FSC would go so far as to put a total ban on digital currencies. However, finance minister Kim Dong-yeon has maintained that there will be no ban.

On 17 April 2018, representatives of 14 Korean digital currency exchanges, including Bithumb, Upbit and OKCoin, released a set of self-regulatory guidelines for digital currency exchanges in South Korea. The exchange representatives are members of the Korea Blockchain Association. The self-regulatory guidelines involve an inspection of all member exchanges and require the satisfaction of five conditions: (1) manage clients’ digital coins and their own separately; (2) cope with abnormal transactions quickly; (3) float new digital currency with enhanced client protection systems; (4) hold a minimum equity of KRW2 billion (US$1.8 million); and (5) publish regular audit and finance reports. The guidelines also recommend an inspection of exchange systems in order to identify “if there are loopholes that could be used for insider trading, price rigging and money laundering”. While none of these regulations is legally binding, they signal a clear movement toward transparency and government regulation.

Regulatory outlook

Despite the flurry of regulatory activity from different South Korean agencies and the judiciary, market participants are still awaiting clear guidance from the National Assembly in the form of a statute that will provide a comprehensive regulatory framework. It seems that such a statute is forthcoming: On 19 June 2018, the FSC announced it would seek to place digital currency exchanges under a comprehensive regulatory scheme.

For the first time, there will be a legal definition of virtual currency in Korea – an “electronically transferable token or information regarding such token, which a trade counterparty may recognize as a means of exchange or a storage of value”. This definition is designed to exclude other plausible definitions of digital currency, including “measure of value” or “means of payment”.

Under the proposed regulatory scheme, digital currency exchanges would be required to register with South Korea’s Financial Intelligence Unit, a sub-organization of the FSC that monitors transactional flows to prevent money laundering or other attempts to evade capital control measures. The exchanges would also need to comply with “Know Your Customer” and anti-money laundering regulations at levels similar to banks. The proposed legislation is currently pending before the National Assembly.

In addition to the FSC’s proposed regulatory scheme, there are several other pending bills regarding digital currency trades and taxation measures. These bills have remained pending due to local elections in South Korea, but given a general lack of resistance toward digital currency regulation, they are expected to pass in the National Assembly soon.

One of the key pending legislations is a digital currency tax bill. Since early this year, there have been active discussions on whether digital currency trades are subject to South Korea’s standard corporate and local income tax. To address the issue, the Ministry of Strategy and Finance (MOSF) is expected to propose a revised digital currency tax bill in August this year. If it passes, South Korea could begin imposing tax on digital currency trades as early as 2019.

Along with various domestic legislative activities, the MOSF is also working on synchronizing South Korea’s regulatory measures with its G20 counterparts, signalling an increase in cross-border co-operation and enforcement activities among G20 member nations. The MOSF expects to see more detailed international regulatory guidelines in July 2018. The next six months will be a critical period for South Korea’s regulatory landscape of digital currency, one that is worth keeping a close watch on.


9/F, Tower B, The-K Twin Towers

50, Jong-ro 1-gil, Jongno-gu

Seoul, 03142


China | Philippines | South Korea | Taiwan | U.A.E

Already known globally as a high-tech 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 anti-money laundering rules specific to cryptocurrencies by November this year.

Jaime Cheng
Of Counsel at Lee Tsai & Partners in Taipei
Tel: +886 2 2378 5780 (Ext. 2247)

The Taiwan government is also discussing, but has not concluded, developing further regulations for ICOs, and it is the hope of industry proponents that the need for government oversight will be minimized through the industry’s self-regulation.

Nevertheless, it is expected that developments in other countries such as the US, Switzerland and other countries with more mature laws will be heavily referred to by the Taiwan government and self-regulating organizations in developing Taiwan’s own cryptocurrency-related rules and self-regulation model requirements.

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 does not encourage, not prohibit, and not take responsibility for it.

This approach has been viewed as an opportunity for ICOs to land in Taiwan, and in an effort to allow the Taiwan government to maintain such a “hands-off” position, an increasing number of ventures, scholars, researchers and other proponents of ICOs advocate for the self-regulation of ICOs as the mechanism to protect investor’s rights.

With this background, on 22 May (known as Pizza Day in the blockchain community), two 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.

The TBSRO aims to reduce the need for excessive government oversight, and to allow the government to take a more supportive approach towards the blockchain industry by requiring its members to comply with transparency and other investor protection mechanisms.

Taiwan Fintech Association (FTA), an organization co-founded by Jaclyn Tsai (also a founding partner of Lee Tsai & Partners) will lead the TBSRO. Under Tsai’s lead, the FTA is also establishing an international ICO transparency platform with global leaders in the ICO industry to bridge the information gap between ICO issuers and investors.

With strong self-regulatory mechanisms in place to protect investors, the need for government regulation will be minimized.

Anti-money laundering (AML)

As with most other jurisdictions, due to the decentralized and anonymous nature of Bitcoin, the Taiwan government is concerned with the potential that they may be used for illegal transactions and crime.

As a member of the Asia-Pacific Group on Money Laundering, Taiwan is obligated to follow the recommendations published by the Financial Action Task Force (on money laundering FATF), which is responsible for setting global AML policies.

Teresa Huang
Associate Partner at Lee Tsai & Partners in Taipei
Tel: +886 2 2378 5780 (Ext. 2248)

On 15 June 2015, FAFT published a non-binding Guidance For Risk-Based Approach to Virtual Currencies, and recommended that all jurisdictions impose specific AML requirements on decentralized virtual currency exchanges, wallet providers, payments processors/senders, and other virtual currency business models.

The obligations include applying a risk-based approach, customer due diligence (CDD), registration/licensing requirements, record-keeping, identification and mitigation of risks associated with new technologies, AML programme requirements, and suspicious transaction reporting.

Up to 35 countries and the European Commission recently asked FATF to enhance the AML requirements for cryptocurrencies, and FATF at the time of going to press of this article, is in the process of reviewing its standards relating to cryptocurrencies. There is a high probability that FATF will adopt new standards like those currently in place in South Korea, such as banning anonymous trading of cryptocurrencies, the introduction of the real-name system, and strict regulation on verifying customers’ identities.

On 30 May 2018, the Ministry of Justice, the Taiwan Financial Supervisory Commission (FSC), the Central Bank of Taiwan (CBT), and the Ministry of Economic Affairs jointly stated that bitcoin-related industries, including but not limited to exchanges, are required to comply with the Taiwan Money Laundering Act. The authors expect that AML guidelines specific to cryptocurrencies will be developed by November 2018, and will incorporate the FATF’s most updated guidelines.

Legal classification of cryptos

In 2013, the FSC and 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 have 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 v Howey, to determine whether foreign investment contracts are securities.

After evaluating the four considerations in the Howey test (1) is it an investment of money; (2) is it a common enterprise; (3) is there a profits sharing from the investment; and (4) does the profit come from the effort of others the Taiwan High Court determined that interests in a foreign limited liability company are securities, and, as a result, the sale of the interest was subject to the SEA and regulated by the FSC.

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.

Recently, Wellington Koo, the chairperson of the FSC, stated that ICO tokens could be classified into three categories: utility type, security type, and payment type tokens. This is similar to the approach taken by the Swiss Financial Market Supervisory Authority (FINMA), which created the following categories according to the specifications of the tokens:

  1. Asset tokens security tokens referenced by Wellington Koo are virtual tokens that represent an asset, such as a debt claim or equity of the issuer;
  2. Utility tokens are virtual tokens intended to provide access digitally to an application or service using a blockchain-based infrastructure; and
  3. Payment tokens are tokens used as a means of payment for acquiring goods or services, or as a means of money or value transfer.

It is the authors’ view that the FSC will likely place a strong consideration on FINMA’s 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 cryptocurrency 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.

We can expect that there will be major developments in Taiwan in the coming months on the regulation of cryptocurrencies. Blockchain businesses and cryptocurrency issuers deciding on its jurisdiction should closely monitor these developments and consider whether Taiwan would be a proper jurisdiction for its incorporation.



Head Office

9F, 218 Tun Hwa S. Rd, Sec. 2,

Taipei 106, Taiwan, ROC


China | Philippines | South Korea | Taiwan | U.A.E

The terms “Blockchain” or “Bitcoin” were alien to the general public in the United Arab Emirates (UAE) when Satoshi Nakamoto began the Bitcoin phenomenon in 2008. However, today with one of the world’s first cryptocurrency deep “cold storage” companies operating in Dubai, it is clear that tides have shifted and the UAE is actively becoming part of this global trend.

Adil Shafi
Partner at Anjarwalla Collins & Haidermota in Dubai
Tel: +971 4452 9091

Blockchain technology is a decentralized public or private ledger that records transactions between two or more parties. It is this key feature of “decentralization” that makes this technology particularly attractive to investors globally. In particular, Nakamoto took advantage of the features of blockchain technology to create the most well-known cryptocurrency, Bitcoin. Cryptocurrency is an encrypted digital currency that operates using blockchain technology. Unlike fiat currency, which is regulated by a single entity such as a central bank, cryptocurrencies are validated through a decentralized system whereby any party participating in the process can verify the transactions that take place.

Regulatory framework in UAE

In a bid to become a pioneer in blockchain technology, the UAE has launched the UAE Blockchain Strategy 2021, pursuant to which 50% of government transactions will be conducted using blockchain technology by 2021. To solidify its vision, regulations on the use of crypto assets, including cryptocurrencies, have recently been issued.

The Financial Services Regulatory Authority (FSRA) – which is the financial regulator of the Abu Dhabi Global Markets (ADGM), a free zone in Abu Dhabi – has become the first regulator in the UAE to issue comprehensive guidance and regulations on carrying out activities relating to cryptocurrencies. The FSRA issued supplementary guidance on the regulation of Initial Coin/Token Offerings and Virtual Currencies (under its Financial Services and Market Regulations), under which it commented on initial coin offerings (ICOs), whereby cryptocurrencies are offered for sale to the general public.

Under this guidance, the FSRA will, on a case-by-case basis, determine whether a proposed coin token is a security or a commodity. If the FSRA finds the token to be the former, the ICO would be subject to the Financial Services and Market Regulations, but if the token is the latter, the ICO would be unregulated. In addition, the FSRA, on 25 June 2018, through its publication of the Regulation of Crypto Asset Activities in ADGM (ADGM regulations), introduced a regulated activity of “operating a crypto asset business” which includes operation of crypto assets exchange houses, but excludes issuances of ICOs.

Kajal Patel
Associate at Anjarwalla & Khanna Advocates in Mombasa, Kenya
Tel: +971 4452 9091

The ADGM regulations highlight mandatory requirements to carry out the regulated activity and aim to promote transparency and technology governance in order to ensure compliance with anti-money laundering and combating financial terrorism requirements. It should be noted that the ADGM regulations have recently been published and, as such, a concrete conclusion with respect to their implementation cannot be provided in this article.

Meanwhile, the Dubai Multi Commodities Centre (DMCC) has introduced a regulated activity known as “proprietary trading in crypto-commodities”, suggesting that the DMCC views cryptocurrency as commodities. However, businesses in the DMCC carrying this licence are only permitted to trade on their own behalf (that is, to use their own funds for trading), and establishment of exchange houses and conducting ICOs is still not covered under this licence. Another noteworthy development is the issuance by the DMCC of a licence to a DMCC company enabling such company to be among the world’s first cryptocurrency deep “cold storage” vaults.

Prior to the publication of the AGDM regulations and the steps taken by the DMCC, the UAE Central Bank, in January 2017, issued a Regulatory Framework relating to Stored Values and Electronic Payment Systems, stipulating that all virtual currencies, including virtual currency transactions, are prohibited. As expected, this regulatory framework raised an alarm in the UAE crypto-market.

Following uncertainty among market players as to the extent of the prohibition, the Governor of the UAE Central Bank published a statement clarifying that the regulations do not apply to cryptocurrencies, crypto exchanges, or underlying technology such as blockchain technology. The Governor added that virtual currencies were under review by the UAE government and that appropriate legal regulations would be issued in due course.

This statement was a step in the right direction. However, regulators other than FSRA are yet to publish any regulations, and there remains concern among UAE crypto-traders as to the legality of the activity. From a strict legal perspective, until the regulatory framework is amended or new regulations are issued to deal with virtual currencies, the regulatory framework remains valid, and technically speaking the UAE Central Bank can take action against existing and proposed businesses, (save for businesses licensed to carry out the regulated activity in ADGM) dealing in virtual currencies.

The Securities and Commodities Authority (SCA), the securities regulator of the UAE, and Dubai Financial Services Authority (DFSA), the financial regulator of Dubai International Financial Centre, recently announced that they have not issued regulations to govern ICOs and establish cryptocurrency exchange houses in the UAE. In their statements, both financial regulators emphasized the high risk associated with trading in cryptocurrencies, and that investors who carry out these investments do so at their own risk.

UAE market players

Despite having limited regulations, entities in the UAE have incorporated the use of blockchain technology in their operations. UAE Exchange, a leading UAE exchange house, recently partnered with San Francisco-based Ripple to enable real-time, cross-border payments using Ripple’s blockchain technology. By reducing the requirement to have third-party foreign exchange handlers, UAE Exchange has managed to cut its administrative costs.

The authors have also observed a rise in cryptocurrency exchange houses such as BitOasis, which offer services to the UAE public. The authors understand that BitOasis currently operates as an entity established in the British Virgin Islands. With the introduction of the ADGM regulations, it is anticipated that there will be a rise in licensed cryptocurrency exchange houses operating from the UAE.

The Government of Dubai has sought to promote the use of blockchain technology by introducing the “Dubai Blockchain Strategy”. Upon successful implementation of this strategy, Dubai aims to become the first “blockchain powered government”. Following on from this, the Dubai Land Department (DLD) is developing its own blockchain system to record all real estate contracts and link DLD with utility companies such as the Dubai Electricity & Water Authority. The blockchain system will also allow tenants to make payments electronically, resulting in such transactions being paperless and therefore cost-efficient.

The DLD aims to push all boundaries by allowing transactions to be completed without requiring parties to appear in person before any government entity. Interestingly, certain property developers in the UAE have announced that they now allow buyers to invest in their projects using One-Gram, the Shariah- compliant cryptocurrency.

Financial institutions such as banks are also turning to blockchain technology to not only improve efficiency (including reduced processing time and costs) of their Know Your Customer (KYC) processes but to also assist in complying with anti-money laundering requirements. The ADGM has launched an e-KYC utility project with a consortium of UAE financial institutions which aims to develop a governance framework to set out the requirements of the e-KYC utility using distributed ledger technology.

The legal sector may also witness another interesting development – smart contracts. A smart contract is a digital contract that automatically verifies fulfillment of conditions and then executes agreed terms. For instance, in a supply contract it is usual for the supplier to pay the price of goods upon delivery of the same. A smart contract in this area may therefore be programmed to automatically pay the supplier upon receipt of goods without involvement of either party to the contract. This will in turn contribute to Dubai’s aim to have paperless transactions.

Update on KSA

With the recent deal between the Saudi Arabian Money Authority (SAMA), the Central Bank of Kingdom of Saudi Arabia (KSA), and Ripple, banks in KSA are set to use Ripple’s xCurrent blockchain technology for instant cross-border payments, making it clear that KSA, too, is in the race to become a hub in advanced technology. However, it should be noted that the SAMA is still amidst developing regulations, and therefore at present no regulatory framework exists in relation to this digital space in KSA.

Keeping in line with its vision, the FSRA is the first and only regulator to publish regulations relating to operating a crypto business. However, as the ADGM regulations have been issued only recently, it remains to be seen how they will be used and implemented. Also, with talks of the UAE and KSA jointly working towards creating a cryptocurrency for cross-border transactions, it is evident that the two nations seek to be forerunners in this field of technological advances.

While the UAE Central Bank and the SAMA are yet to issue any regulatory framework to govern this sector, it is foreseeable from the initiatives taken by the UAE and KSA that regulators in these jurisdictions will soon break their silence and issue relevant regulations in order to enhance their bids to become the regional hubs for blockchain development and innovation.




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