Taiwan's Legislative Yuan Finance Committee held its fifth public hearing on the draft "Virtual Asset Service Provider Act" (VASP Act) on June 12. The session focused on six key regulatory areas proposed by the Financial Supervisory Commission (FSC) and the Central Bank's recommendations for stablecoin regulation. This marks a crucial step toward establishing a comprehensive legal framework for the cryptocurrency industry in Taiwan.
The FSC aims to submit a revised draft to the Executive Yuan by the end of June, with the goal of passing the third reading during the 2025 legislative session. Once enacted, virtual asset service providers (VASPs) that have not yet completed registration must transition from the current "registration system" to a new "licensing system" within six months. Failure to comply may result in criminal penalties and platform removal.
Experts suggest that while short-term trading volumes on domestic exchanges might shrink by 10-15% due to increased compliance costs, the new law could attract larger international exchanges to enter the Taiwanese market in the long run.
Initial Business Scope for VASPs Under the New Act
The FSC plans to adopt a "gradual incorporation" approach to regulating the virtual asset industry. Commission Chairman Peng Jinlong outlined this process in four phases:
- Phase One: Implementation of the "Money Laundering Prevention and Counter-Terrorism Financing Regulations for Virtual Currency Platforms and Transaction Businesses" (VASP AML/CFT Regulations).
- Phase Two: Establishment of a VASP industry association and development of self-regulatory norms.
- Phase Three: Amendments to the Money Laundering Prevention Act to introduce a VASP registration system, clarify VASP definitions, and impose criminal liabilities on illegal operators.
- Phase Four: Enactment of the specialized VASP Act to effectively regulate market behavior and promote the healthy development of fintech and the VASP industry.
Initially, the VASP Act will permit licensed operators to conduct six types of business activities:
- Virtual asset exchange
- Platform operations
- Asset transfers
- Custody services
- Underwriting
- Lending services
The FSC indicated that more business scenarios would be gradually introduced based on risk assessments. Operators conducting unlicensed businesses involving fraud may face enhanced penalties under the "Fraud Crime Harm Prevention Act."
Perspectives from Industry, Academia, and Legislators
Industry Representatives
Industry leaders generally welcome the regulatory framework but express concerns about compliance costs, transition periods, and development space.
Tsai Yu-ling, Honorary Chairman of the FinTech Association of Taiwan, emphasized that "fraud issues should not hinder the development of the virtual asset industry." She recommended that the parent law authorize detailed subsidiary regulations to maintain flexibility in a rapidly evolving market.
Chien Shu-yung, Director of the Taiwan Virtual Asset Anti-Money Laundering Association, suggested aligning terminology with FATF standards, applying proportional regulation, considering global capital mobility benefits, and avoiding simply copying the EU's MiCA regulations.
Cheng Guang-tai, Chairman of the Virtual Currency Commerce Association (VASP), pointed out that the current licensing application requires integrating multiple mechanisms, such as joint defense data and asset custody, making the timeline tight for operators. He proposed extending the transition period and clarifying disposal norms for failed applications.
Academic Perspectives
Academics provided more detailed supporting measures and policy recommendations from theoretical and practical perspectives.
Yang Yueh-ping, Associate Professor at National Taiwan University's College of Law, noted that while the draft references multiple countries' regulations, it retains flexibility for local adjustments, especially concerning issues like delisting foreign platform apps.
Lin Meng-xiang, Associate Professor at Ming Chuan University, advocated for unified access standards for domestic and foreign operators and the establishment of a regulatory sandbox mechanism.
Legislative Opinions
DPP Legislator Chung Chia-pin warned that cryptocurrencies are increasingly being used for money laundering. He suggested implementing real-name authentication and KYC mechanisms similar to those used in traditional finance.
KMT Legislator Lai Shih-pao argued that the Central Bank's refusal to recognize cryptocurrencies as legal tender hinders industry development. He urged the government to focus on "promoting benefits" and growth, suggesting that crypto assets be included in mandatory property declarations.
KMT Legislator Ko Ju-jun proposed more forward-thinking ideas, including discussing cryptocurrencies as part of "sovereign reserves" and planning to issue state-backed stablecoins to avoid marginalization in the digital economy era.
Stablecoin Regulation: FSC and Central Bank Perspectives
The Central Bank specifically addressed stablecoin regulation at the public hearing. FSC Vice Chairman Chen Yan-liang acknowledged that while stablecoins pose potential risks to sovereign currency and financial stability, they also present business opportunities.
The FSC, referencing international standards, defines stablecoins as "virtual assets linked to the value of one or multiple fiat currencies to maintain value stability." A licensing system will be adopted: domestic issuance requires FSC approval after consulting the Central Bank, and trading of foreign stablecoins in Taiwan also needs regulatory consent.
To ensure stablecoin value, issuers must hold sufficient reserves isolated from their own assets, stored in domestic financial institutions with regular audits. Reserve assets must maintain high liquidity, and foreign exchange-related issuance must comply with Central Bank regulations.
Central Bank Business Department Director Hsieh Feng-ying and lawyer Xiong Quandi both recommended treating stablecoins as "tokenized payment tools." Their payment functions should be managed with reference to the current "Electronic Payment Institutions Management Act," specifying issuer reserve deposit obligations and business reporting norms.
However, KMT Legislator Lin Szu-ming cautioned that excessive regulation at this stage could inhibit early industry development, given the absence of large-scale stablecoins in Taiwan. He suggested progressive supervision, combining sandbox mechanisms rather than immediately requiring reserve assets, and starting with standard regulation for single-currency stablecoins before gradually expanding to multi-currency pegs.
Frequently Asked Questions
What is the Virtual Asset Service Provider Act (VASP Act)?
The VASP Act is a proposed specialized law in Taiwan aimed at regulating virtual asset service providers. It outlines licensing requirements, permitted business activities, and operational standards to protect investors and ensure market integrity.
When will the VASP Act come into effect?
The Financial Supervisory Commission aims to pass the law during the 2025 legislative session. Once enacted, existing VASPs will have a six-month transition period to comply with the new licensing requirements.
What are the penalties for non-compliance?
Unlicensed operators may face criminal penalties, including fines and potential imprisonment. Platforms operating without a license may be removed from the market.
How does the Act define stablecoins?
Stablecoins are defined as virtual assets linked to the value of one or multiple fiat currencies to maintain value stability. Their issuance and trading are subject to regulatory approval.
What are the major concerns from industry players?
Industry representatives are concerned about high compliance costs, short transition periods, and stringent requirements that might stifle innovation and growth. They advocate for flexible regulations that align with international standards.
How does Taiwan's approach compare to other jurisdictions?
Taiwan's gradual, phased approach resembles strategies adopted elsewhere but incorporates local adjustments. It focuses initially on anti-money laundering measures before expanding to comprehensive market regulation, similar to Japan's and Singapore's models. 👉 Explore more regulatory strategies
The ongoing legislative process reflects Taiwan's effort to balance innovation with risk management, aiming to create a secure environment for the virtual asset industry while fostering its growth. The final shape of the law will significantly influence the future of cryptocurrencies and blockchain technology in the region.