Taiwan edged closer to regulating digital assets after the Virtual Asset Management Bill passed its first reading in parliament, the Legislative Yuan, last week. The bill seeks to define digital assets, ensure customer protection, and introduce a license requirement.
The 30-page bill calls for “better protection” for customers and to “properly supervise” the industry, as well as suggesting obligations for virtual asset service providers (VASPs) such as separating customer funds from the company’s reserve funds, establishing an internal control and audit system, and joining the local trade association.
The new regulation has been on the cards for several weeks. In an early October interview with one news outlet, Yung-Chang Chiang, a member of the Legislative Yuan, disclosed plans to introduce a new rule book to regulate the activities of digital currency service providers.
Chiang stated that a draft version of the regulation would be submitted for deliberation by the legislature before the end of November, but in the end, the proposed draft was ready for its first vote earlier.
The bill was proposed by Chiang and 16 other lawmakers. Amongst its obligations, it requires all digital asset platforms operating in Taiwan to apply for a permit. If they fail to do so, they may be forced to cease operations in the territory.
The second reading of the bill has yet to be scheduled, but according to Chiang’s office, it could come in early 2024, before the current tenure of all Taiwanese lawmakers ends.
The Virtual Asset Management Bill would join various other measures Taiwan recently introduced in the digital asset space.
Turning regulatory spotlight on digital assets
Taiwan was one of the hardest hit countries by the collapse of FTX, accounting for more users than India, the U.K., Italy, Thailand, and other digital asset hotspots. This inspired a rethink amongst lawmakers and regulators over digital asset industry oversight.
On September 26, Taiwan’s Financial Supervisory Commission (FSC), the territory’s top financial markets regulator, announced a much-anticipated set of guidelines for VASPs, emphasizing increased oversight and customer protections.
Under the new guidelines, which had been on the cards since September 7 when the FSC took over management of digital assets and announced it was drafting new guidelines, domestic digital asset platforms are required to ensure the separation and safe custody of company and customer assets and establish clear review standards for the listing and delisting of digital assets.
The guidelines also included a mandate that offshore exchanges seeking to operate in Taiwan must now register with the FSC.
In addition to cracking down on rogue exchanges, the new rules require VASPs to get the FSC’s approval before publishing ads, segregate customer assets from operating capital, and implement robust anti-money laundering (AML) procedures.
The FSC also banned derivative products, deeming them too complex for retail investors, with offenders facing up to seven years behind bars.
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