Cryptocurrency exchange products with high interest rates and high APY violate banking laws? Regulatory Feasibility Analysis of Cryptocurrency Exchange Products

According to Taiwan's Banking Law, offering remuneration to attract funds from an unspecified majority is a banking business (franchising business)

No deposits other than banks

• Article 29, Paragraph 1 of China's Banking Law: "Except as otherwise provided by law, non-banks shall not operate in accepting deposits , entrusting management of trust funds, public property, or conducting domestic foreign exchange business."
• What is a deposit?
• Article 29-1 of the Banking Law: "In the name of borrowing money, receiving investment, or joining as a shareholder or other name, receiving money or absorbing funds from a large number of people or unspecified people, and agreeing or paying dividends not commensurate with the principal, Interest, dividends or other remuneration shall be regarded as receiving deposits.”
• What are the consequences of violating section 29 of the Banking Act?
• Companies, businesses or individuals without a banking license are not allowed to accept deposits (absorb funds in the name of remuneration)
• According to Article 125, Paragraph 1 of the Banking Act, "they shall be sentenced to fixed-term imprisonment of not less than three years but not more than ten years, and may also be fined not less than 10 million yuan but not more than 200 million yuan. The property or property benefits obtained from the crime reaches NT$200 million. Those who exceed 100 million yuan shall be sentenced to fixed-term imprisonment of not less than seven years, and may also be fined not less than NT$25 million but not more than NT$500 million.”

Are wealth management products provided by cryptocurrency exchanges and cryptocurrency asset management companies in violation of banking laws?

Many cryptocurrency exchanges or crypto asset management companies will have financial products similar to living and fixed deposits, including providing an annualized rate of return of more than 8% after depositing or staking cryptocurrencies, and their names may have staking rewards , creditor's rights certificate, wealth management loan products, creditor's rights subscription plan, etc.

But no matter how the name is taken, its connotation is to deposit a cryptocurrency into an exchange or asset management company, and after the expiration, you can get the originally deposited cryptocurrency (principal) and remuneration (interest).

And cryptocurrency exchanges or crypto asset management companies almost do not have banking licenses, so wouldn't this violate Article 29 of the Banking Law "Non-bankers shall not take deposits." Isn't it?

The answer is "no"

my country's practice (High Court 107 Kim Appeal 83 Criminal Judgment) believes that the main reason is:

1. From the perspective of overall legal norms and operational practices, the funds or funds referred to in the Banking Law are limited to legal currency or foreign legal currency . In the past, banks also refused to accept Bitcoin or other cryptocurrencies as deposit or payment methods.
2. Cryptocurrencies also do not have mandatory liquidity and finality of liquidation between banks.

Therefore, at present, in Taiwan, an individual or legal person who accepts Bitcoin or other cryptocurrencies and provides remuneration does not constitute accepting deposits under the Banking Law. Therefore, cryptocurrency exchanges and cryptocurrency asset management companies currently do not need a bank license to provide financial products that receive cryptocurrencies and provide remuneration.

However, if we look at the legislative history of the Banking Law, the government's strong supervision of banks not only has the need to control the flow of funds, but also protects the public, so as to prevent the absconding and high-risk of absorbing the deposits of an unspecified majority of people or the general public. Fraudulent syndicate. From this point of view, cryptocurrency exchanges or cryptocurrency asset management companies actually still have a regulatory need to prevent absconding after absorbing cryptocurrencies from an unspecified majority.

Therefore, it is difficult to say whether cryptocurrency exchanges or cryptocurrency asset management companies in the future will be as regulated as the current regulatory model (almost no regulation except for money laundering prevention).

However, when retail investors choose cryptocurrency exchanges or cryptocurrency asset management companies, they must choose carefully. The shorter the time of the exchange's operation and the higher the level of anonymity of team members, the higher the risk behind it.

After this article introduces whether cryptocurrency exchanges and cryptocurrency asset management companies in Taiwan need relevant banking licenses, it will then introduce how Japan and the United States regulate cryptocurrency exchanges and cryptocurrency asset management companies, and provide my country as a refer to.