BIS Collaborates with Singapore’s MAS, Bringing CBDC Pilot to a Close

Taiwan’s Financial Supervisory Commission (FSC), the independent government agency that regulates activity within Taiwan’s securities, virtual assets, banking and insurance sectors, is planning to invite applications from financial institutions to participate in a crypto custody services pilot program, scheduled to commence in Q1 2025. The Central News Agency (CNA), the national news agency of the Republic of China, published a report on Oct. 8, outlining the FSC’s intentions with regard to this crypto custody pilot program. The media outlet confirmed that three Taiwanese banks had expressed an interest in participating in the program.  The Director of the FSC’s Comprehensive Planning Division, Hu Zehua, outlined at a press conference that the regulator is planning to provide further information relative to the pilot program 15 days in advance of inviting applications from prospective participants. Photo by 張 峻嘉 on UnsplashPublic consultationAdditionally, the FSC executive outlined that the regulator intends to collect feedback from the public relative to the proposed pilot program, and fine-tune the process based upon that feedback. Hu stated that he recognizes that based on crypto custody activity carried out overseas, operational security is of paramount importance. Therefore, the FSC is interested in placing emphasis on this aspect of the activity as part of the pilot program.  Illicit funds and money laundering is another area of concern. With that the FSC executive outlined that financial institutions must proactively block virtual assets that are found to originate from illicit sources. In August a Taiwanese couple was indicted for laundering around $50 million in illegal funds through cryptocurrencies. Earlier this month, the FSC revised Taiwan’s regulatory framework relative to anti-money laundering (AML). The update now requires digital assets firms to register with the Taiwanese government by no later than September 2025. Failure to do so may result in these crypto companies being fined up to $156,000 or company executives facing up to two years in prison. Bitcoin, Ethereum and Dogecoin mentionedPilot program applicants will be expected to specify the type of digital assets they intend to custody. Explanatory information released by the FSC gave Bitcoin, Ethereum and Dogecoin as examples. Additionally, applicants are required to outline the type of client they will cater towards in providing a crypto custody service. Among the examples mentioned were virtual asset platforms, professional investors and general investors. The FSC announced at the end of last month that professional investors are now permitted to access foreign virtual asset exchange-traded funds (ETFs) and invest in them through a re-entrustment method. Taiwan has been making progress recently in bringing about regulatory clarity and establishing conditions within which Web3 companies can develop. The FSC had been working towards the production of draft crypto regulations over recent months. This followed a move by Taiwanese legislators in October 2024 to introduce the Virtual Asset Management Bill to parliament, with the objective of strengthening customer protections and establishing industry supervision. In September, the regulator released guidelines, including a measure which bans overseas crypto platforms from operating within the country. 

Japan's Financial Services Agency (FSA) is proposing new legislation in an effort to prevent the assets of Japanese investors held on crypto exchanges from being transferred overseas. According to local news outlet Jiji Press, the Japanese regulator recently put forward the idea of drafting such a bill. It’s thought that the move suggests that the Japanese regulators have learned from the collapses of cryptocurrency exchanges Mt. Gox and FTX. Photo by Jaison Lin on UnsplashLearning from past failuresWhile Japan already had a higher standard of regulation in place prior to the FTX collapse, likely as a consequence of the authorities having experienced the downfall of Mt. Gox in February 2014, there is still room for improvement.  While funds had been ring-fenced for FTX Japan users, those who accessed services advertised in Japan through the FTX app were deemed to have been accessing a service which fell under an international jurisdiction, denying them the same protections otherwise offered to FTX Japan platform users as a consequence of the regulations that had been put in place. Incorporating a holding orderJapanese media outlet Nikkei described this latest move by the Japanese FSA as follows: “The Financial Services Agency is moving towards creating a new ‘holding order’ in the Payment Services Act, which regulates cryptocurrency exchanges, that will order them not to take domestic assets entrusted to them by customers overseas.” Consequently, the regulator is looking to add this as the latest proposed amendment to the Payment Services Act. Back in September it emerged that amendments to that existing legislation were being looked at with a view towards making it easier for businesses to incorporate digital assets into their service offerings. The regulator has also been mulling over the reclassification of crypto as a financial instrument by amending the Payment Services Act accordingly. Additionally, a more generous tax policy is being proposed. Currently, the Japanese authorities impose a tax rate of up to 55% on cryptocurrency-related revenues. Corporate holders of digital assets have to apply a 30% tax rate, irrespective of income or profits. With that, a 20% tax rate is being considered. The matter became a political issue prior to the East Asian nation’s recent elections, with the leader of the Democratic Party for the People (DPP) backing the application of a 20% crypto tax rate. The application of a holding order has applied previously to companies that have been registered under the Financial Instruments and Exchange Act. This proposed amendment would see it applied to virtual asset trading platforms as part of the Payment Services Act. Guarding against bankruptcy lossesIf applied, the amendment would prevent loss of Japanese investor funds in circumstances where a crypto exchange platform goes into bankruptcy. Legal precedent set in the FTX bankruptcy in the United States means that if a user’s funds go into a non-individually segregated hot wallet belonging to an exchange, any property rights, even if explicitly outlined in the terms of service, are lost.  A company can make a case to go into bankruptcy in any international jurisdiction, which means that this precedent has potential implications for all market participants. The proposed amendment from the Japanese FSA would serve to protect investors from such an eventuality.

Singapore-based Terraform Labs, the company behind the failed algorithmic stablecoin TerraUSD, has officially filed for Chapter 11 bankruptcy protection in the United States. It appears that the crypto space is not finished with dealing with the excesses and mismanagement that emerged at the end of the last market cycle. This move from Terraform comes in the wake of a $40 billion cryptocurrency crash and ongoing legal scrutiny, with the firm stating its intention to continue operations and support for the Terra community.Photo by Melinda Gimpel on UnsplashBusiness plan executionTerraform Labs was co-founded by Do Kwon, who is currently under investigation for its alleged wrongdoing relative to the failure of TerraUSD. The bankruptcy filing, submitted on Sunday to the Bankruptcy Court for the District of Delaware, aims to facilitate the company's business plan execution while navigating ongoing legal proceedings, including representative litigation in Singapore and the United States involving the Securities and Exchange Commission (SEC). In a statement, Chris Amani, CEO of Terraform Labs, commented on the decision, stating:"The Terra community and ecosystem have shown unprecedented resilience in the face of adversity, and this action is necessary to allow us to continue working toward our collective goals while resolving the legal challenges that remain outstanding." Amani reassured stakeholders that the decision ensures the company can maintain its commitment to working with the community on infrastructure, innovative tools, products and other ecosystem support. Amani became CEO of the company in July of last year, having been acting as Terraform’s COO prior to that. He acknowledged the challenges faced and expressed optimism about overcoming them, highlighting the resilience of the ecosystem after previous hurdles. Liabilities and assets in $100M to $500M rangeThe company emphasized that the Chapter 11 filing is designed to allow it to meet all financial obligations to employees and vendors without requiring additional financing. The estimated liabilities and assets fall within the range of $100 million to $500 million, as indicated in the filing. The SEC has initiated a civil trial against Terraform Labs and Do Kwon, accusing them of orchestrating a $40 billion cryptocurrency fraud through the TerraUSD algorithmic stablecoin and its sister token Luna. The SEC alleges that Terraform Labs and Kwon raised billions of dollars from investors through unregistered transactions, leading to the collapse of TerraUSD and Luna in May 2022. Both the SEC and Terraform have unsuccessfully filed for summary judgment in the case. Far-reaching consequencesThe crash had far-reaching consequences, impacting several crypto firms, including Singaporean crypto hedge fund Three Arrows Capital, Singaporean crypto lender Hodlnaut, Voyager Digital and Celsius Network. Do Kwon, a South Korean national, faces additional criminal charges in the United States related to fraud and market manipulation. His arrest in Montenegro in March 2023 and pending extradition requests from South Korea and the United States underscore the global legal challenges confronting him. The U.S. District Court for the Southern District of New York has scheduled the SEC trial against Terraform Labs and Kwon for late March, accommodating Kwon's extradition process. Meanwhile, in South Korea, Terraform Labs co-founder Daniel Shin has denied wrongdoing in the collapse as part of separate proceedings taken against him.