Taiwan enacts digital asset laws, new licensing rules

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Taiwan’s Legislature has passed a law establishing a regulatory framework for digital asset firms in the country, including licensing requirements for virtual asset service providers (VASPs) and stablecoin issuers, as well as strengthened market conduct regulations.

The “Virtual Asset Services Act” was passed by the Legislative Yuan on its third reading on June 30, and the bill now heads to President Lai Ching-te’s desk for final approval, which he is expected to grant within 10 days.

According to a statement from Taiwan’s Financial Supervisory Commission (FSC)—the country’s finance sector regulator and the body that will be enforcing the framework—VASPs must obtain approval from the financial watchdog to operate in the country, as well as adhere to more stringent requirements on cybersecurity, client asset segregation, and internal controls.

Taiwan currently regulates digital assets primarily through its anti-money laundering (AML) regime, rather than a tailored or comprehensive licensing regime. VASPs must register with the FSC for AML compliance before offering services, implement AML and counter financing of terrorism (CFT) controls, conduct customer due diligence, maintain internal controls, and comply with reporting requirements.

With the passage of the new Virtual Asset Services Act, the management of VASPs will be upgraded from AML to “comprehensive and sound operation and market order,” said the FSC, while further strengthening the protection of traders’ rights.

Meanwhile, more substantial rules for stablecoins will allow for issuing within Taiwan, which the FSC suggested, “will help Taiwan integrate with the international market and gain a foothold in the global virtual asset market, which will greatly benefit the long-term sound development of Taiwan’s virtual asset market.”

After President Lai rubber stamps the bill, the implementation date will be determined by the Executive Yuan and once decided, VASPs that already have an AML license and financial institutions that have provided related services will need to apply for a VASP license from the FSC within 12 months of the bill’s implementation and obtain the license within 21 months, with a single extension of 3 months possible if necessary.

Going forward, the FSC said it would continue to actively draft subsidiary legislation, “widely soliciting external opinions to improve the regulatory framework.”

Key features of the bill

Among the bill’s key features is a strengthening of supervision of digital asset firms by clearly defining the types and scope of VASPs, including seven types of service providers: exchanges, trading platforms, transferors, custodians, underwriters, lenders, and others.

The bill then regulates their financial and business operations, including the qualifications of responsible persons and personnel; internal control and auditing systems; cybersecurity systems and management; virtual asset delisting and listing review mechanisms; segregated custody of customer assets; outsourced operations and civil liability to customers; and financial reporting.

On stablecoins, the bill provides regulation of issuance and management, with issuance requiring the consent of Taiwan’s Central Bank and the FSC. Issuers must also maintain sufficient reserves, entrust them to trustees, and conduct regular audits and disclose information.

This bill also strengthens market conduct regulations, explicitly prohibiting unfair practices such as fraud, deception, or price manipulation.

Those who fall foul of the new rules could face up to 10 years in prison and fines between NT$10 million (US$314,055) and NT$200 million (US$6,281,112).

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