Taiwan passes key crypto law, clearing legal uncertainty for digital asset sector

Taiwan's legislature has passed a law establishing a regulatory framework for the crypto industry, including rules for crypto trading platforms and stablecoin issuers. 

The Legislative Yuan passed the "Virtual Asset Service Act" in its third reading on Tuesday, officially sending the bill to President Lai Ching-te's desk. Lai is expected to promulgate the law within 10 days, with the cabinet to determine its effective date.

Under the act, virtual asset service providers must obtain approval from the Financial Supervisory Commission (FSC) before operating, according to a Tuesday statement from the financial watchdog. The law also introduces stricter requirements on cybersecurity, client asset segregation, and internal controls.

Currently, Taiwan requires businesses or individuals providing crypto services operating in Taiwan to complete anti-money laundering (AML) procedures and register their service capacity. Once the new law takes effect, platforms that have already completed AML registration will have 12 months to apply for a license and 21 months to secure FSC approval and other relevant licenses.

Companies seeking to issue or manage stablecoins must also obtain approval from both the central bank and the FSC, and maintain full reserve backing, per the statement.

Notably, the legislation imposes criminal penalties for violations. Those illegally operating a virtual asset service provider or stablecoins could face up to seven years in prison and fines of up to NT$100 million ($3.14 million). Fraud or crypto market manipulation also carry prison terms of three to 10 years and fines ranging from NT$10 million ($314,000) to NT$200 million ($6.28 million).

Legal clarity

Kevin Cheng, a Taiwanese lawyer and founder of crypto consultancy Harmony Governance Advisors, told The Block that many crypto businesses that previously operated in a legal gray area will no longer be able to rely on regulatory ambiguity.

Also, existing crypto companies will likely face more intense competition, he said, as the law opens the door for traditional financial institutions to enter the space.

"Traditional financial institutions will also be allowed to operate VASPs in the future, meaning existing crypto firms will soon face competition from players with far more robust financial compliance capabilities," said Cheng. "Unless VASPs can strengthen their competitive advantages before these new entrants arrive, they could face intense competitive pressure."

Titan Cheng, chairman of the Taiwan VASP Association and founder of crypto exchange BitoGroup, told The Block that the industry association will assist regulators in drafting the law's implementing rules, including those governing licensing, personnel management, operations, and internal controls.

"The VASP Association will help firms navigate the transition period and minimize market disruption," said Cheng of BitoGroup.