Taiwan’s Virtual Asset Services Act draft has advanced into a pivotal stage of legislative development, marking a significant milestone for the region’s digital economy and financial innovation landscape. On June 12, the Legislative Yuan’s Finance Committee convened its fifth public hearing on the proposed law, centering discussions around key regulatory frameworks put forward by the Financial Supervisory Commission (FSC) and critical recommendations from the Central Bank regarding stablecoin oversight.
This comprehensive legislative effort aims to formalize the operation of virtual asset service providers (VASPs), establish investor protections, and position Taiwan as a competitive hub in the global Web3 and blockchain ecosystem. With the FSC targeting submission of the revised draft to the Executive Yuan by late June and a goal of final passage during the 2025 legislative session, stakeholders across industry, academia, and government are aligning on a shared vision for regulated yet innovative growth.
Core Regulatory Framework and Permitted VASP Activities
Under the draft legislation, VASPs will initially be authorized to conduct six core business activities:
- Virtual asset exchange
- Trading platform operations
- Asset transfer services
- Custody solutions
- Underwriting (token sales)
- Lending services
The FSC emphasized a risk-based, incremental approach—indicating that additional service offerings may be introduced over time as market conditions and regulatory readiness evolve. This phased expansion reflects Taiwan’s broader “gradual regulation” strategy for the virtual asset sector.
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The four-phase regulatory roadmap previously outlined by FSC Chairperson Peng Jin-long includes:
- Initial Oversight: Implementation of the VASP Anti-Money Laundering and Counter-Terrorist Financing Measures, marking the first formal regulatory entry point.
- Self-Regulatory Development: Formation of a VASP industry association to develop自律 (self-regulatory) standards.
- Enhanced Legal Enforcement: Amendments to the Anti-Money Laundering Act introducing mandatory VASP registration and criminal penalties for unlicensed operations.
- Comprehensive Legislation: Enactment of the dedicated Virtual Asset Services Act to provide holistic legal clarity and market legitimacy.
Key regulatory focus areas in the current draft include:
- Rules for overseas VASPs operating in Taiwan
- Investor protection mechanisms
- Criminal liability for unauthorized operations
- Licensing and supervision of financial institutions offering crypto services
- Gradual opening of new business models
- Mandatory financial reporting and transparency
Operators found guilty of unlicensed activity involving fraud could face enhanced penalties under Taiwan’s Fraud Crime Prevention Act.
Industry, Academic, and Legislative Perspectives
Industry Stakeholders Advocate for Balance
Industry leaders broadly support clear regulations but urge proportionality in compliance demands and sufficient transition periods.
Cai Yu-Ling, Honorary Chair of the Taiwan FinTech Association, stressed that “fraud should not be used as an excuse to block the development of virtual assets.” She advocated for a principle-based framework law (母法), with detailed rules developed through subordinate legislation (子法), allowing agility in response to fast-moving technological changes.
Jian Shu-Yong, Director at the Taiwan Virtual Asset AML Association, echoed international alignment needs. Drawing from Global Digital Finance (GDF) principles, he recommended:
- Aligning terminology with FATF (Financial Action Task Force) standards
- Applying proportionality in regulatory design
- Preserving benefits from global capital flows
- Avoiding direct replication of EU’s MiCA framework
He warned that overly stringent rules could render Taiwan a “shallow market,” limiting liquidity and competitiveness.
Cheng Kuang-Tai, Chairman of the VASP Trade Association, highlighted operational challenges, noting that license applicants must integrate complex systems—including joint defense mechanisms and asset custody protocols—within tight timelines. He called for an extended transition period and clearer guidance on post-review outcomes.
Hsiao Hui-Tsung, Vice Chairman, emphasized collaboration: “Creating this law is about mutual understanding between regulators and innovators. Blockchain is new—we won’t get everything right immediately. But we need to start somewhere.”
Academic Insights: Risk Grading and Regulatory Sandboxes
Academics offered nuanced policy suggestions grounded in legal and economic theory.
Yang Yue-Ping, Associate Professor at National Taiwan University College of Law, observed that while the draft draws from international models, it retains flexibility for local adaptation—such as excluding provisions for forced app takedowns of foreign platforms due to technical and user autonomy concerns.
Lin Meng-Xiang from Ming Chuan University proposed establishing unified准入 (entry) criteria for domestic and foreign VASPs, coupled with regulatory sandboxes to test innovation under supervision.
Meanwhile, Zheng Ting-Xian from Central University suggested tiered risk management based on company size—a model that would help investors better assess platform reliability and systemic exposure.
Legislative Voices: From AML Gaps to Sovereign Reserves
Lawmakers brought forward both cautionary notes and forward-looking proposals.
Democrat Progressive Party (DPP) legislator Chung Chia-Pin warned that cryptocurrencies are increasingly being exploited by criminal groups for money laundering—surpassing even gold in illicit utility. He pointed out a critical gap: unlike banks or securities firms, crypto platforms lack OTP-based KYC verification, creating vulnerabilities in anti-money laundering (AML) defenses.
KMT legislator Lai Shi-Pao criticized the Central Bank’s refusal to recognize crypto as legal tender, arguing it hampers national competitiveness. He urged a dual focus on both risk prevention and opportunity creation, proposing that crypto holdings be included in mandatory asset disclosure forms once the law passes.
Even more ambitiously, KMT legislator Ge Ru-Jun suggested exploring cryptocurrency as part of Taiwan’s sovereign reserve discussions. He advocated for studying the feasibility of issuing a national credit-backed stablecoin to strengthen resilience against global financial volatility and prevent marginalization in the digital economy era.
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Stablecoin Regulation: Bridging Innovation and Stability
Stablecoins emerged as a central topic during the hearing, with both the FSC and Central Bank weighing in on governance frameworks.
The FSC defines stablecoins as virtual assets pegged to one or more fiat currencies to maintain price stability. Issuers—whether domestic or foreign—must obtain FSC approval, consult with the Central Bank, and comply with strict reserve requirements.
To safeguard value stability:
- Full reserves must be held separately from corporate funds
- Assets stored in local financial institutions
- Regular audits required
- High liquidity maintained
- Foreign exchange aspects regulated per Central Bank rules
Central Bank official Hsieh Feng-Ying and legal expert Hsiung Chuan-Di from Lee and Li Attorneys recommended treating stablecoins as tokenized payment instruments, with oversight modeled after Taiwan’s Electronic Payment Institutions Act. This would mandate reserve deposit obligations and operational reporting.
However, KMT legislator Lin Szu-Ming cautioned against overregulation at this early stage, given Taiwan’s limited stablecoin adoption. He proposed a phased approach using sandbox testing—starting with single-currency pegs before expanding to multi-currency models—rather than imposing full reserve rules immediately.
FAQ Section
Q: What is the Virtual Asset Services Act?
A: It’s Taiwan’s proposed comprehensive law to regulate virtual asset service providers (VASPs), covering licensing, investor protection, anti-money laundering, and business conduct standards.
Q: When is the law expected to pass?
A: The FSC aims to submit the revised draft by June 2025, with full legislative passage targeted within the 2025 session.
Q: Will foreign crypto exchanges be allowed in Taiwan?
A: Yes, but they must comply with local licensing requirements or operate under approved frameworks for overseas VASPs.
Q: How will stablecoins be regulated?
A: As tokenized payment tools requiring full fiat reserves, segregated custody, regular audits, and compliance with electronic payment-like reporting rules.
Q: What happens to platforms not licensed under the new law?
A: Unlicensed operators will face criminal penalties and potential shutdowns after a six-month grace period post-enactment.
Q: Is Taiwan planning to issue its own digital currency or stablecoin?
A: While no official issuance has been announced, some legislators have proposed studying a national credit-backed stablecoin as part of future monetary strategy.
The Virtual Asset Services Act represents a strategic balancing act—between innovation and oversight, openness and security, domestic capacity and global integration. As debates continue in committee rooms and boardrooms alike, one thing is clear: Taiwan is positioning itself at the forefront of responsible digital finance evolution.
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