Taiwan passes Virtual Asset Service Act to regulate crypto

The Legislative Yuan passed the Virtual Asset Service Act in its third reading on Tuesday and sent the bill to President Lai Ching-te. Lai is expected to promulgate the law within 10 days, after which the cabinet will set the law's effective date.

The statute creates a licensing regime for virtual asset service providers. Any company or person offering virtual asset services in Taiwan must obtain approval from the Financial Supervisory Commission (FSC) before operating. The law covers crypto trading platforms, wallet providers and stablecoin issuers and sets standards for cybersecurity, segregation of client assets and internal controls for licensed firms.

Under current practice, firms and individuals offering crypto services in Taiwan complete anti-money laundering (AML) procedures and register their service capacity. Once the new law takes effect, platforms that have completed AML registration will have 12 months to apply for an FSC license and 21 months to secure FSC approval and any other required permits.

Companies that issue or manage stablecoins must obtain approval from both the central bank and the FSC and are required to hold full reserve backing for those coins.

The act introduces criminal penalties for operating without authorization and for certain misconduct. Individuals or entities that run a virtual asset service or issue stablecoins without approval face up to seven years in prison and fines up to NT$100 million (about $3.14 million). Fraud and market manipulation tied to crypto products carry prison terms of three to 10 years and fines ranging from NT$10 million to NT$200 million (roughly $314,000 to $6.28 million).

Kevin Cheng, a Taiwanese lawyer and founder of a crypto consultancy, warned that many firms that operated in a legal gray area will no longer be able to rely on regulatory ambiguity. He noted that traditional financial institutions will be allowed to operate VASPs in the future, which could increase competition and pressure existing crypto firms to strengthen compliance and business models.

Titan Cheng, chairman of the Taiwan VASP Association and founder of BitoGroup, said the association will work with regulators on drafting the law's implementing rules, covering licensing standards, personnel requirements, operational procedures and internal controls. He added: “The VASP Association will help firms navigate the transition period and minimize market disruption.”

Regulators will now prepare detailed licensing procedures and supervisory practices to enforce the new standards and oversee the market's transition once the law is promulgated and an effective date is set.