Taiwan Unveils Landmark Virtual Asset Service Act: A New Era for Crypto Regulation

Taiwan has taken a monumental step in the regulation of its burgeoning virtual asset sector. The Executive Yuan Council today (April 2) officially approved the draft of the “Virtual Asset Service Act”, proposed by the Financial Supervisory Commission (FSC). This pivotal legislation aims to establish robust frameworks for Virtual Asset Service Providers (VASPs) and stablecoin issuers, detailing operational requirements, compliance procedures, and stringent supervisory mechanisms. Crucially, it also introduces severe penalties for fraudulent and manipulative behaviors, underscoring Taiwan’s commitment to market stability and comprehensive investor protection.

Under the new draft law, unauthorized issuance of stablecoins could lead to significant legal repercussions, including imprisonment for up to seven years and/or a fine of up to NT$100 million. For more egregious offenses such as market manipulation or fraud, the penalties escalate sharply, with imprisonment ranging from three to ten years, coupled with fines that could reach an staggering NT$200 million.

According to comprehensive reports from CNA, Liberty Times, and Economic Daily News, Premier Cho Jung-tai emphasized the transformative impact of financial technology and virtual assets on traditional financial services. He noted that the FSC has meticulously developed this framework by referencing international supervisory trends, with a strong foundation in anti-money laundering (AML) principles. The strategy involves integrating VASPs into the regulatory fold through industry self-regulation, implementing an enhanced AML registration system, and enacting the Virtual Asset Service Act through a phased, four-stage approach. A key objective is to fortify anti-fraud measures by embedding VASPs within the broader financial anti-fraud ecosystem, fostering collaborative defenses and public-private partnerships to construct a resilient protection network.

Three Pillars of Taiwan’s New Virtual Asset Law

The proposed regulatory architecture is strategically built upon three core tenets:

1. Enhanced Supervision for Virtual Asset Service Providers (VASPs)

The Act clearly delineates the scope of virtual asset businesses, the various categories of service providers, and the specific licensing requirements. It mandates that VASP operators must function as specialized companies, adhering to strict norms regarding their names, organizational structures, and capital requirements. Financial institutions, upon obtaining the necessary permits, will also be allowed to operate concurrently in this space. Operators are required to implement robust internal control and audit systems, ensure the segregation of client assets, uphold data confidentiality obligations, and establish transparent criteria for the listing and delisting of virtual assets.

2. Rigorous Regulation of Stablecoin Issuance

The draft law defines stablecoins as “virtual assets representing a value linked to one or more fiat currencies to maintain stable value.” Issuers will be required to obtain explicit permission from the competent authority, a process that necessitates prior consent from the Central Bank. As mentioned, unauthorized issuance carries severe penalties, including up to seven years imprisonment and/or a fine of NT$100 million.

Furthermore, stablecoin issuers must establish and meticulously maintain full reserve assets, which are to be held in domestic financial institutions, strictly segregated from the issuer’s own property, and subjected to regular audits. Issuers are also mandated to implement comprehensive internal control and audit systems for stablecoin issuance and redemption, secure information and communication system management, and robust business continuity policies. Transparency is paramount, requiring the disclosure of prospectuses, reserve asset management policies, redemption policies, and the total outstanding stablecoin balances.

3. Prevention of Unfair Market Practices

To safeguard investor rights and uphold the integrity of the trading market, the Act explicitly prohibits any “false, fraudulent, concealed, or misleading acts” concerning information that could significantly influence the issuance or trading of virtual assets. It also strictly forbids “direct or indirect” manipulative behaviors designed to affect the trading price or the supply and demand of virtual assets.

Violators of these provisions face severe penalties, including imprisonment for three to ten years, alongside fines ranging from NT$10 million to NT$200 million.

Gradual Evolution: Derivatives and Broadened Stablecoin Issuance

During a post-cabinet meeting press conference, Chen Yen-liang, Deputy Chairman of the FSC, clarified Taiwan’s cautious approach to virtual asset derivatives. He indicated a “gradual opening” rather than an immediate, comprehensive release, acknowledging the current limitations in public understanding of virtual assets. This measured strategy aims to advance supervision carefully, fostering innovation without fully opening the floodgates.

Significantly, Chen Yen-liang stressed that stablecoin issuance is not exclusively limited to banks. While initial considerations for risk control will prioritize financial institutions with stronger capital and risk management capabilities, the thresholds for issuers will be adjusted in the future based on the specific nature of their business. Once the main law is enacted, subsidiary regulations will provide detailed guidelines on business scope, capital requirements, and other pertinent standards.

Huang Hou-ming, Deputy Director-General of the FSC’s Securities and Futures Bureau, highlighted two crucial adjustments in the Executive Yuan Council’s approved version compared to the original draft: First, issuers are now mandated to issue and redeem stablecoins at face value and cannot refuse redemption requests from holders. Second, issuers are expressly prohibited from offering interest or returns on the stablecoins they issue.

Welcoming Overseas VASPs with Prudence

Regarding the establishment of overseas virtual asset service providers (such as exchanges) in Taiwan, Chen Yen-liang affirmed the government’s “positive, cautious, and friendly” stance. The review process will be conducted with an open and inclusive spirit, carefully balancing financial innovation with industrial development. The goal is to attract high-quality operators to Taiwan while simultaneously mitigating regulatory gray areas.

Huang Hou-ming outlined three key criteria for supervising overseas crypto businesses: Firstly, they must meet the same stringent review standards as domestic operators. Secondly, compliance with the anti-money laundering regulations of their country of origin is mandatory. Thirdly, their willingness to cooperate with Taiwan’s judicial authorities in investigating illegal activities will be critically assessed.

Online Transactions for Enhanced Traceability

The draft law emphasizes that transactions should primarily be conducted online, explicitly discouraging cash transactions. Chen Yen-liang explained that this measure is fundamentally designed to establish traceable transaction records, thereby strengthening anti-money laundering mechanisms and laying a crucial foundation for a robust digital payment system. He underscored that international virtual asset supervision frequently originates from AML and payment management considerations, a path Taiwan is also adopting.

Currently, Taiwan regulates VASPs through an AML registration system. As of March, eight operators have successfully completed this registration. Among them, five engage in trading platform operations, exchange, custody, and transfer services; two focus on exchange, transfer, and custody; and one operates exclusively as a transfer service provider.

The draft legislation will now proceed to the Legislative Yuan for deliberation and has been designated as a priority bill for the Finance Committee this session. Its successful passage will mark Taiwan’s official adoption of its first dedicated virtual asset law, promising a clear and compliant pathway for industry participants and fostering a significantly safer trading environment for investors.