What Happened?
The Financial Supervisory Commission (FSC) has announced the draft of the “Virtual Asset Service Act” and plans to hold multiple public hearings before submitting it to the Executive Yuan. This indicates that the regulatory authority is actively seeking a wide range of opinions from the industry and academia through formal legislative procedures to establish a clear regulatory foundation for virtual asset services.
Industry associations and operators generally suggest that the intensity of regulation should adopt a tiered management approach based on the risk levels and scale of the operators (a coexistence of licensing and registration systems). They also recommend extending the transition period and hope that regulations can moderately open up more diversified businesses (such as derivative products) with clear standards for listing and delisting, balancing innovation and competitiveness.
In light of recent frequent cases of fraud and money laundering related to virtual assets, the FSC’s Inspection Bureau is concurrently conducting special inspections on VASP operators that have completed statements of compliance with anti-money laundering laws. The focus covers anti-money laundering, combating the financing of terrorism, consumer protection, and fraud prevention measures, demonstrating the determination to curb illegal activities through law enforcement measures.
Draft of the “Virtual Asset Service Act”: Broadly Seeking Suggestions for Completeness
The Taiwan financial regulatory authority is actively advancing the establishment of a regulatory framework for Virtual Asset Service Providers (VASP). In addition to vigorously proceeding with the legislative process of the “Virtual Asset Service Act” draft and collecting opinions from various sectors to improve the regulatory foundation, it is also initiating special inspections on VASP operators that have completed compliance statements for anti-money laundering laws, demonstrating a supervisory strategy that balances legislative and enforcement efforts.
Recently, the FSC announced the draft of the “Virtual Asset Service Act” and initiated an intensive public hearing process. According to reports from the Commercial Times, FSC Chairman Peng Jinlong stated that at least 22 public hearings will be held to fully listen to valuable opinions from the industry, academia, and all sectors of society to ensure the comprehensiveness and feasibility of the bill’s content before it is submitted to the Executive Yuan.
Industry Perspective
Industry players generally suggest that the upcoming specialized law should follow the principles of “gradual progression” and “tiered management.” Considering the diversity and innovation of the virtual asset field, the intensity of regulation should vary based on the risk levels and operational scales of the businesses, rather than applying a one-size-fits-all approach.
At the same time, the industry hopes to moderately open up more diversified virtual asset products for local operators under controllable risk conditions, such as the increasingly popular virtual asset derivative financial products (ETFs, perpetual contracts, dual currency options, etc.), to avoid business opportunities flowing to offshore platforms due to regulatory restrictions, which would weaken the competitiveness of local operators.
Peng Yunxian, founder of HOYA BIT, pointed out that establishing clear review standards and processes for the listing and delisting of cryptocurrencies is crucial for market stability and transparency, helping to enhance investor confidence.
She suggested that when implementing delisting mechanisms, a warning system and buffer period should be established to reduce the risk of excessive market volatility due to sudden events. Regarding stablecoins, she emphasized that issuing institutions should be required to maintain sufficient reserves and regularly disclose audit reports to enhance asset security and exchange reliability.
Association Perspective
The Virtual Currency Business Association of the Republic of China (VASP Association) specifically suggested during the public hearing to refer to the model of the “Electronic Payment Institution Management Regulations,” implementing different levels of regulation based on risk levels and the amount of assets held by operators. For example, operators with large scales and high asset custody amounts could adopt a stricter “licensing system,” while those with relatively lower risks could maintain the current “registration system.”
Additionally, the association recommended extending the transition period for operators after the law goes into effect from six months to twelve months, allowing operators more ample time for adjustments and preparations, drawing on the experience of combating terrorism financing in Hong Kong.
Academic Perspective
Academics, such as Associate Professor Yang Yueping from National Taiwan University College of Law, provided feedback on the draft content and industry suggestions. He believes that although the current draft has not detailed all execution details, the existing registration system already has the preliminary framework for tiered management based on business types and risk levels.
He supports that the main body of the bill should not set excessively fragmented regulations to avoid difficulties in future adjustments, leaving more execution details to be formulated through special regulations or administrative rules in the future, which would be more flexible.
Professor Yang specifically pointed out that the inclusion of “virtual asset lending businesses” in this special law draft is a new business item compared to the existing registration system and is a relatively underregulated area internationally, seen as an important breakthrough. This business allows investors to lend assets (such as stablecoins) to operators and potentially receive interest returns.
According to the scholars’ estimates, from the submission of the special law to the Executive Yuan to the completion of the third reading of the legislation and its actual implementation, it will take at least two to three years. During this period, the FSC and the industry still have a considerable amount of communication and preparatory work to undertake.
FSC Inspection Bureau Takes Action: Strengthening Law Enforcement Against Irregularities
Alongside the legislative process, the FSC is also conducting on-site inspections of registered VASP operators.
Recently, the Taiwanese cryptocurrency market has experienced a series of cases involving money laundering and fraud, which has raised significant public concern. In response, the FSC’s Inspection Bureau has decided to strengthen law enforcement efforts.
Guo Wenlong, Deputy Director of the Inspection Bureau, stated that as of the end of March this year, a total of 21 VASP operators had completed statements of compliance with anti-money laundering laws and applied for registration. Since 2023, the Bureau has scheduled inspection plans based on the operational scale and risk levels of VASP operators. By the end of last year, inspections of 10 operators had been completed, with plans to conduct special inspections on an additional 12 VASP operators that have applied and completed statements of compliance this year.
Guo Wenlong pointed out that the inspection targets will focus on these 21 operators. Considering that among the 10 operators inspected last year, two were unregistered, and the currently inspected CoinThink Technology, it is expected that there are still 12 operators pending inspection. The Bureau will strive to include these 12 operators in this year’s inspection plan as manpower allows.
This year’s special inspection of VASP operators will focus on multiple aspects, including the implementation of regulations related to anti-money laundering (AML), combating the financing of terrorism (CFT), and countering the proliferation of weapons (CPF), as well as the adequacy of consumer protection measures for investors, with particular attention to fraud prevention-related control measures.
Reference materials: Commercial Times, Commercial Times