When it comes to crypto, the FSC’s priority is to manage systemic financial risk and protect the banking system from being roiled by its mercurial nature – everything from wild price fluctuations to sudden collapses of firms and even entire exchanges like FTX. Everything else is secondary. For the FSC, the heavy exposure of some retail investors in Taiwan to FTX was unfortunate, but the regulator would say it warned them to be careful. The FSC is much more concerned about the possibility of incumbent banks getting ensnared in a crypto catastrophe and the possibility of wider contagion in the financial system. For that reason, it has warned them to stay away from digital assets on several occasions.
At this point, the only reason, the FSC is enacting crypto regulations is that in the wake of FTX’s collapse Taiwanese legislators are pressuring the cabinet to do something to protect retail investors – who include their constituents. An estimated 500,000 to 600,000 Taiwanese investors lost a combined NT$1.5-3 billion (about US$49-98 million) from FTX’s implosion. Only a handful of other countries suffered greater losses from the exchange’s collapse.
According to Bloomberg, the FSC will focus on regulating payment and trading-related virtual assets, and the cabinet will assign the rest to other government departments. It is unclear why the FSC cannot be the regulator for all categories of digital assets. Indeed, FSC regulations cover all financial activities in Taiwan.
It could be that other government departments believe they should be in charge of certain virtual asset regulation, or that the FSC does not want the responsibility, or that Taiwan’s financial bureaucracy is struggling to decide which agency should be responsible. Taiwan is reportedly considering allowing the Securities and Futures Bureau to regulate virtual assets with the characteristics of marketable securities. Meanwhile, the cabinet’s Digital Affairs Ministry might be responsible for NFT regulation while the central bank would oversee stablecoins associated with fiat money.