Alternative Thinking: Lee Chih-Jen Proposes “Collaborative Regulation” for Virtual Currency
- Since 2022, virtual currencies have experienced a series of crises—from the collapse of the stablecoin UST to the bankruptcy of the FTX exchange—making virtual asset regulation a global priority. In Taiwan, virtual assets are not yet listed as licensed businesses, and no dedicated law has been enacted. Some legislators have proposed creating a “Virtual Asset Bureau.” Professor Lee Chih-Jen of Ming Chuan University’s School of FinTech and Director of the Taipei Financial Research Development Foundation suggests that while establishing a new regulator could be considered, a more immediate step is to adopt a “functional approach” to collaborative regulation based on the essential monetary functions: unit of account, store of value, and medium of exchange.
- Lee points out that no country—including Singapore, the U.S., and the U.K.—relies on a single agency to oversee virtual assets. Historically, money has evolved from goods and metals to credit, plastic, and now electronic currencies, but its three key functions remain. Virtual currencies separate these functions, meaning oversight should also be functionally divided: investment-type tokens should fall under securities regulators, while payment-type currencies should return to the central bank’s purview.
- Lee explains that Taiwan’s Financial Supervisory Commission (FSC) is drafting a special law on virtual assets, but the biggest challenge is identifying the main regulatory body. Given the rapid and diverse development of virtual assets, establishing a new agency for each function is unrealistic. Instead, one lead agency should coordinate with other agencies according to the asset’s nature—similar to how the Cultural and Creative Industries Act is managed primarily by the Ministry of Culture but cooperates with other departments as needed.
- He cites Honduras as an example: in 2020, it allowed Bitcoin transactions in specific zones. However, its National Banking and Securities Commission recently banned crypto from entering the broader financial system due to fraud and money laundering concerns—while still allowing Bitcoin use in the designated zones. Lee stresses that the best regulatory model is one that minimizes risk through collaborative governance.
- On whether a dedicated law is necessary, Lee advocates starting with a “Basic Law for Financial Technology Development.” This would define key principles and a framework for future regulations. Specific regulations or administrative rules can then be layered below this basic law to provide clarity and adaptability—unlike the current top-down method.
- Lee notes that the FSC’s decision to start with administrative guidelines rather than legislation reflects practical concerns—since drafting and passing laws can be costly and time-consuming. Taiwan’s prior effort to pass the Electronic Payment Institutions Act (a “special law” for third-party payment) faced similar challenges as technologies evolved quickly.
- Still, Lee maintains that a foundational basic law is essential—not only for virtual assets but for the broader fintech sector. This would help resolve legal ambiguities, such as whether Taiwan’s Financial Consumer Protection Act applies to virtual asset transactions.
- Regarding the U.S. SEC’s recent approval of spot Bitcoin ETFs, which marks a regulatory milestone, Taiwan’s FSC has stated it will not allow such products for now. Does this mean Taiwan is falling behind? Lee suggests not opening the floodgates but instead taking a “phased and conditional” approach, such as initially limiting quantity or setting investor qualifications, while assessing market demand.
- Finally, addressing criticisms that Taiwan is slow in embracing virtual assets, Lee argues otherwise. Taiwan follows a civil law system, which emphasizes rules-based regulation—unlike the principles-based system in Anglo-American countries. Taiwan is not behind, he says, but is prioritizing risk management over speed. Regulatory openness must always be grounded in robust risk controls.
Source: China Times News
https://www.ctee.com.tw/news/20240312701405-430301
