FSC decides that “security tokens” shall be deemed securities under the Securities and Exchange Law and is preparing relevant regulations (Taiwan)

Debby Yu

ICOs (Initial Coin Offering) are a fund-raising action developed based on blockchain technologies.  Tokens issued through ICOs consist of payment type, function type and securities type tokens based on their characteristics.  The primary function of payment type tokens is for them to be used for currency payment or value transfer, while function type tokens are exchanged for fixed goods or offset against consumption and thus are similar to gift vouchers or goods coupons under the current laws of Taiwan.  As for the securities type tokens, they are most likely to fall within the scope of securities since the securities regulated under the Securities and Exchange Law in Taiwan should represent criteria such as a certain value, investability and circulation.[1]  As far as securities trading laws and regulations are concerned, an issuer should at least confirm if the tokens to be issued will be regarded as securities, if the issuance requires an approval, what information disclosure requirements the issuer is required to meet and how to trade legally in the market of such country in order to properly manage potential legal risks.[2]

The Financial Supervisory Commission (hereinafter, the “FSC”), the competent authority for the Securities and Exchange Law in Taiwan, has issued a directive for Article 6 of the Securities and Exchange Law on July 3, 2019[3] to include security tokens in the scope of administration by stipulating that security token offerings (STO) shall be regarded as the securities under the Securities and Exchange Law and conducted the pre-announcement procedure for the Standards for the Establishment of Securities Firms (which is expected to provide that a STO trading platform operator shall obtain a license for securities dealer with a minimum paid-in capital of NT$100 million), the Regulations Governing Securities Firms and the Regulations Governing the Legal Representatives and Sales People of Securities Firms (which are expected to be managed by the Taipei Exchange, which will also prescribe the regulations for the administration of personnel).  When the statutory pre-announcement period expires (September 2, 2019), the above regulations will be promulgated along with relevant circulars and regulations separately prescribed by the Taipei Exchange.[4]

The current focuses of the FSC on its exploration into STO regulations are on the manners of issuance and trading as well as STO trading platform operators, which covers not only their qualifications but also their fundraising limits, the handling of STO transfers and custodial business.  Therefore, the preliminary regulatory framework for STOs in Taiwan has been formed and will be further clarified after relevant laws and regulations are formally released.  However, legal risks for the STOs, which are considered to meet the regulatory definition should be regulated, do exist.  As for whether the STOs will be regulated, this remains to be seen based on future judicial practices.

[1] Hsin-yi Chung, Preliminary Exploration into the Regulatory Trends for ICOs, the National Development Council’s Annual Economic Research Journal, Vol. 19

[2] Sean Liu, Esq., and Elva Chuang, Esq. (Lee, Tsai & Partners), End of Anarchy for Token Financing: On legal Risks to ICOs Based on Recent Developments in the US (Taiwan), November 13, 2017


[3] The Jin-Guan-Fa-1803221164 Directive of July 3, 2019 from the Financial Supervisory Commission:

“Subject: security tokens are ‘securities’ within the meaning of the Securities and Exchange Law

Full text:

1. Article 6, Paragraph 1 of the Securities and Exchange Law provides that a security token is regarded as securities under the Securities and Exchange Law. 2. The so-called ‘security token’ shall refer to one which represents value storable, exchangeable, and transferrable digitally via cryptography, distributed ledger technology or other similar technologies, and which may be circulated with the following investment properties: (1) investors contribute capital; (2) capital is contributed to the same joint enterprise or project; (3) the investors expect to generate profits; and (4) profitability depends on the efforts of the issuer or third parties. 3. This Directive shall become effective on the day of its issuance.”

[4]Website of Securities and Futures Bureau of the FSC, the FSC’s explanation about the Regulations Relating to the Security Token Offering (STO), https://www.sfb.gov.tw/ch/index.jsp (Last browsed on July 18, 2019)