The Financial Supervisory Commission (FSC) of Taiwan has announced the draft Virtual Asset Services Act—a comprehensive regulatory framework aimed at fostering a secure and transparent environment for virtual asset businesses operating within the region. This landmark proposal marks a significant step toward formalizing oversight of digital asset exchanges, custodians, issuers, and other key players in the rapidly evolving crypto ecosystem.
As global financial regulators intensify their focus on digital assets, Taiwan is aligning its policies with international standards set by jurisdictions such as the European Union, Japan, South Korea, Hong Kong, the UK, and the International Organization of Securities Commissions (IOSCO). The draft law reflects extensive consultation with industry stakeholders, academic experts, central banking authorities, and self-regulatory organizations.
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Purpose and Scope of the Draft Legislation
The primary objective of the Virtual Asset Services Act is threefold: to ensure orderly development of virtual asset services, strengthen market supervision, and safeguard investor rights. By establishing clear licensing requirements and operational guidelines, the FSC aims to build trust in the digital finance sector while mitigating risks associated with fraud, market manipulation, and asset mismanagement.
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Licensing Requirements for Virtual Asset Service Providers
Under the proposed law, any entity offering virtual asset services must obtain prior approval from the FSC. This includes businesses involved in exchange services, custodial solutions, trading platforms, and initial offering platforms.
Key provisions under licensing regulations (Draft Articles 6–12) cover:
- Permitted business types and operational models (standalone or combined services)
- Minimum capital thresholds and mandatory performance bonds
- Eligibility criteria for directors and compliance officers
- Corporate structure requirements
- Restrictions on using misleading names that imply banking or financial authority
Only licensed firms may legally operate as Virtual Asset Service Providers (VASPs), ensuring accountability and adherence to prudential standards.
Common Operational Safeguards Across All VASPs
To promote responsible business practices, the draft mandates uniform management rules applicable to all licensed providers (Draft Articles 13–23). These include:
- Financial prudence: Requirements for sound risk management, liquidity planning, and regular audits.
- Internal controls: Implementation of robust compliance systems and independent audit functions.
- Client protection: Clear segregation of customer funds from corporate assets.
- Data privacy: Strict confidentiality obligations regarding user information.
- Asset custody: Rules governing secure storage of virtual assets, including permissible cold wallet usage.
- Withdrawal rights: Customers must be able to access their funds promptly upon request.
- Lending restrictions: Limits on the use of client-held digital assets for lending or collateral purposes.
- Reporting & transparency: Regular financial disclosures and public availability of key service terms.
These safeguards are designed to minimize systemic risks and enhance consumer confidence.
👉 See what secure digital asset platforms should offer under new compliance rules
Specific Rules for Different Service Types
Beyond general obligations, the draft introduces tailored requirements based on service function:
- Exchange operators must disclose real-time trading data and enforce anti-manipulation protocols.
- Trading platform operators are required to conduct rigorous due diligence before listing any virtual asset.
- Custody providers must implement advanced cybersecurity measures and restrict third-party delegation of core custody functions.
- Underwriters must provide full disclosure of project details and risks during token offerings.
Such role-specific rules ensure that each segment of the ecosystem operates under appropriate scrutiny.
Industry Self-Regulation Through Trade Associations
Recognizing the importance of industry-led governance, the draft mandates that all VASPs join an officially recognized trade association (Draft Articles 29–33). These associations will:
- Promote ethical standards and best practices
- Conduct training programs for professionals
- Assist in self-monitoring and peer review
- Serve as intermediaries between regulators and members
The FSC retains supervisory authority over these bodies to ensure alignment with public interest goals.
Stablecoin Issuance Under Regulatory Oversight
One of the most notable aspects of the draft is its dedicated chapter on stablecoins (Draft Articles 34–35). Given their potential impact on monetary stability, issuers of algorithmic or fiat-backed stablecoins must obtain separate authorization.
Requirements include:
- Transparent reserve holdings
- Regular attestation by independent auditors
- Clear redemption mechanisms
- Prohibition on interest-bearing models that resemble unlicensed deposit-taking
This positions Taiwan among the more forward-thinking jurisdictions addressing stablecoin risks proactively.
Enforcement Powers and Anti-Fraud Measures
To deter misconduct, the FSC will be granted broad supervisory powers:
- On-site inspections and data access rights
- Authority to issue corrective orders or suspend operations
- Power to remove unfit managers
- Formal exit protocols for failing firms
Additionally, market abuse—including price manipulation and fraudulent schemes—will be strictly prohibited.
Penalties for Noncompliance
The draft outlines both criminal and administrative consequences for violations:
- Criminal liability for unauthorized operation, fraud, falsification of records, or misuse of client assets
- Fines ranging from NT$1 million to NT$100 million depending on severity
- Personal liability for executives in cases involving corporate misconduct
- Alternative labor provisions for minor offenses
These deterrents underscore the seriousness with which Taiwan views regulatory compliance in the digital asset space.
Transition Period and Implementation Timeline
Upon final enactment, a transition period will allow existing operators to adjust to the new regime. The FSC plans to finalize the draft by June 2025 after reviewing public feedback collected during the 60-day consultation window.
FAQs:
Q: When will the Virtual Asset Services Act take effect?
A: The exact date depends on legislative progress, but implementation is expected after review and approval by the Executive Yuan, potentially in late 2025 or early 2026.
Q: Do foreign crypto platforms need to comply?
A: Any service actively targeting Taiwanese users may fall under jurisdiction and should evaluate licensing requirements.
Q: What happens if a VASP fails to meet capital requirements?
A: The FSC can impose sanctions, including suspension or revocation of license.
Q: Are decentralized finance (DeFi) platforms regulated under this law?
A: Currently, only centralized service providers are in scope; DeFi remains under observation.
Q: How does this affect individual crypto investors?
A: Greater protection through regulated custodianship, clearer dispute resolution paths, and enhanced transparency.
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This comprehensive framework signals Taiwan’s commitment to building a resilient, innovation-friendly digital financial ecosystem. As global standards converge, local compliance will become increasingly critical for both domestic and international market participants.