Challenges and Opportunities in Taiwan’s VASP Regulation

With the rapid growth of Virtual Asset Service Providers (VASP) in the global fintech sector, Taiwan is gradually improving its regulatory framework. From compliance statements to registration systems, and soon to be introduced licensing systems, the Financial Supervisory Commission (FSC) of Taiwan is moving towards stricter regulation.

This transformation presents both challenges and opportunities for the virtual asset market. This article will explore the impact of the current regulatory framework on Taiwan’s VASP ecosystem, analyzing potential enforcement challenges, market opportunities, and future development directions.

Regulatory Evolution: From Lax to Strict

The regulation of VASP in Taiwan has gone through three stages:

• Compliance Statement (2021-2024): Operators are only required to submit Anti-Money Laundering (AML) statements, which is a self-regulation phase.
• Registration System (Starting 2024): The “Regulations on the Registration of Businesses or Individuals Providing Virtual Asset Services for Anti-Money Laundering” requires operators to register with the FSC, submit internal control systems, and accept supervision.
• Licensing System (Expected after 2025): In the future, VASP will be required to obtain licenses, meeting conditions such as capital requirements and personnel qualifications. Operating without a license could result in up to 7 years of imprisonment and a fine of 20 million New Taiwan Dollars.

This evolution indicates that Taiwan is transitioning from a loose exploratory phase to a mature regulatory framework, gradually aligning with international standards (e.g., FATF recommendations). Interested readers can refer to my other article for a detailed explanation: “Analyzing the Evolution of Taiwan’s VASP Regulation: From Compliance Statements to Registration Systems, and Moving Towards Licensing.”

Challenges: Compliance Pressure and Enforcement Issues

Compliance costs are squeezing the survival space of small and medium-sized operators:

The current registration system requires operators to submit detailed internal control documents and undergo CPA verification, while the future licensing system may further raise capital and technical thresholds. For small and medium-sized operators (especially OTC coin dealers), the increase in manpower and capital costs may be difficult to bear. For example, custodians need to strengthen cold and hot wallet management, which poses challenges for smaller operators with limited technical capabilities. The market may thus accelerate consolidation, with small and medium-sized operators exiting or being acquired.

Offshore jurisdictions beyond the regulatory reach:

Even with stricter regulations, offshore VASP may continue to serve Taiwanese users via VPN or other technological means. International experience shows that comprehensive bans in China and licensing systems in Japan have not completely eradicated unlicensed operations. If Taiwan cannot effectively block these platforms or collaborate internationally to track cross-border transactions, the deterrent effect of regulation will be limited.

The dilemma of balancing innovation and regulation:

Overly stringent regulations may stifle emerging applications, such as decentralized finance (DeFi) or NFT platforms. Although the current registration system covers a broad definition of virtual assets, the regulatory details for these new areas remain unclear, leaving operators struggling between compliance and innovation.

Opportunities: Market Maturity and Enhanced International Competitiveness

Increased market transparency and investor confidence:

As the regulatory environment becomes clearer, high-net-worth individuals and listed companies in Taiwan are showing greater willingness to participate in the virtual asset market. For instance, the asset segregation and information disclosure requirements under the registration system reduce fraud risks, while further regulations under the licensing system may promote integration between traditional finance and virtual assets. This is consistent with international trends, such as institutional investors and companies (e.g., MicroStrategy) in the U.S. actively positioning themselves in cryptocurrency due to improved compliance environments.

Expansion opportunities for financial institutions and large operators:

Financial institutions (such as banks, electronic payment services, etc.) may accelerate the integration of virtual asset services due to clearer regulations, providing cryptocurrency payment or settlement functions. For large, well-capitalized, and technologically adept VASP (such as local exchanges), strict regulation is not only a challenge but also an expansion opportunity. These operators can easily meet compliance requirements and capture market share after small and medium-sized operators exit, collaborating with payment companies to explore new business opportunities.

Strengthening international status and aligning with trends:

Taiwan’s regulatory framework references international practices (such as the EU’s MiCA and Japan’s Financial Instruments and Exchange Act), demonstrating the potential to become a leader in virtual asset regulation in Asia. With the implementation of the licensing system, Taiwan may attract more international VASP and high-net-worth investors, gaining recognition in organizations such as FATF. This aligns with global trends—compliance markets are becoming the preferred entry point for high-net-worth clients and enterprises.

Conclusion and Outlook: Who Wins and Who Loses?

Winners: Large exchanges and custodians, as they can bear compliance costs and benefit from market consolidation.

Losers: Small and medium-sized OTC operators and technologically backward platforms may exit due to failure to meet standards.

Unknowns: Offshore operators, if they evade regulation, may still capture local market share, testing enforcement capabilities.

The gradual upgrading of Taiwan’s VASP regulation presents both challenges and opportunities. For operators, compliance costs and enforcement loopholes are short-term pain points, but in the long term, a stable regulatory environment will promote market maturity and attract international attention. If the FSC can find a balance between strict regulation and industry development, drawing on international experience and making flexible adjustments, Taiwan could not only address current challenges but also become a benchmark in the Asian virtual asset market.

For VASP operators, adapting to rules and seizing opportunities is key—those who survive this regulatory evolution will be the winners.