Summary

  • On June 30, Taiwan's Legislative Yuan approved the Virtual Asset Service Act in its third reading, which is now awaiting promulgation by President Lai Ching-te.
  • All virtual asset service providers are mandated to obtain licenses from the Financial Supervisory Commission, while stablecoin issuers must secure approval from both the central bank and the FSC, and are required to maintain full reserves in trust.
  • Operating without a license may result in penalties including up to seven years of imprisonment and fines reaching NT$100 million (approximately $3.1 million), while offenses like fraud or market manipulation can lead to three to ten years in prison.

Taiwan has established one of the most extensive regulatory frameworks for cryptocurrency in Asia, transitioning from minimal registration requirements to comprehensive financial oversight of the sector.

The Virtual Asset Service Act was passed by the Legislative Yuan on June 30 and is anticipated to be signed into law by President Lai Ching-te within ten days. Following this, the cabinet will determine the effective date for the new regulations.

The Financial Supervisory Commission (FSC), which will oversee the implementation of this law, indicated that it marks a shift from a system focused primarily on anti-money-laundering registration to a more comprehensive supervision of crypto firms and market integrity. Previously, companies providing crypto services in Taiwan only needed to complete AML registration.

The act categorizes virtual asset service providers into seven types: exchanges, trading platforms, transfer providers, custodians, underwriters, lenders, and a miscellaneous category for others. Licensed entities will be required to meet standards concerning personnel qualifications, internal controls, audit processes, cybersecurity measures, and asset listing and delisting reviews. Additionally, they must keep customer funds separate from company assets, provide financial disclosures, and assume civil liability for their clients, including for outsourced work.

Firms currently registered for AML compliance will have a transition period to apply for a license within 12 months after the law takes effect, with a full approval deadline of 21 months and a possible three-month extension. Failing to comply with these timelines will result in prohibition from operating.

Issuers of stablecoins face stricter requirements. To issue a stablecoin in Taiwan, they must obtain both the central bank's and the FSC's approval, and must maintain full reserve assets held in trust, which will be subject to regular audits and public reporting.

The penalties for non-compliance are significant. Operating an unlicensed crypto platform or issuing stablecoins without authorization can lead to up to seven years in prison and fines of up to NT$100 million, or $3.1 million. Engaging in fraud or market manipulation could result in three to ten years of imprisonment and fines ranging from NT$10 million to NT$200 million, which is about $314,000 to $6.3 million.

The FSC plans to draft the additional regulations necessary to enforce the new regime, collaborating with industry groups and other stakeholders. Taiwan joins other regions, including Japan, Singapore, Hong Kong, and the EU under its MiCA framework, which are all moving towards regulating cryptocurrency within licensed financial systems.