The Virtual Asset Services Act is finalized! “These violations” will be fined—here are the three key highlights of the draft in one go

Taiwan’s virtual asset regulation takes a key step forward. At today’s (2nd) Cabinet meeting, the Executive Yuan officially approved the draft of the “Virtual Asset Services Act” proposed by the Financial Supervisory Commission (FSC). The draft sets operating requirements, compliance procedures, and oversight mechanisms for virtual asset service providers (VASP) and stablecoin issuers. It also establishes penalties for fraud and market manipulation to ensure market stability and protect traders.

Under the draft, if stablecoins are issued without authorization, the maximum penalty can be up to 7 years’ imprisonment, along with a fine of up to NT$100 million. If the act involves unjust conduct such as market manipulation or fraud, criminal liability would be increased to imprisonment of between 3 and 10 years, with a maximum fine of NT$200 million in addition.

Based on reports from the Central News Agency, Liberty Times, and Economic Daily News, Executive Yuan Premier Cho Jung-tai said that in recent years, financial technology has rapidly evolved, and the application of virtual assets has changed the traditional way financial institutions provide transaction services. The FSC, referencing international supervisory trends and using anti-money-laundering (AML) as the foundation, will bring VASPs under regulation. It will do so through industry self-regulation, by adding an AML registration system, and by promoting the enactment of the “Virtual Asset Services Act.” The FSC will adopt a four-stage approach to gradually strengthen oversight. To further strengthen anti-fraud legal mechanisms, it will also incorporate VASPs into Taiwan’s financial anti-fraud system, building a more complete anti-fraud protection network through industry-based joint anti-fraud efforts and public-private cooperation.

Three Key Focus Areas of the Special Act According to the draft, the regulatory framework focuses on three main aspects: First, strengthening VASP oversight. The draft clearly defines the scope of virtual asset businesses, the types of service providers, and licensing requirements. Service providers must be专营 companies, and their names, organizational forms, and paid-in capital must meet certain standards. Financial institutions may also engage in the business concurrently after obtaining approval. Service providers are required to establish internal control and audit mechanisms, separate custody of customer assets, duties to keep customer information confidential, and review benchmarks for the listing and delisting of virtual assets, among other requirements. Second, regulating stablecoin issuance. The draft defines stablecoins as “virtual assets that represent the value linked to a single or multiple legal tender currencies, in order to maintain value stability.” Issuers must apply to the competent authority for approval, and before approval is granted, they must consult with and obtain the consent of the Central Bank. Those that issue stablecoins without authorization may be punished by up to 7 years’ imprisonment, along with a fine of up to NT$100 million.

Under the draft, issuers should establish and maintain full reserve assets, store them with financial institutions within Taiwan, and separate them from their own property, with periodic verification. Issuers should, for stablecoin issuance and redemption, establish internal control and audit systems, security management systems for information and communications systems, and business continuity policies. At the same time, they must disclose an offering memorandum, reserve asset management policies, redemption policies, and the amount of stablecoins outstanding, among other details. Third, preventing unfair market conduct. To protect traders’ rights and maintain the soundness of the trading market, the draft stipulates that it is prohibited to engage in conduct that includes “falseness, fraud, concealment, or other acts that are likely to cause others to form a mistaken belief” regarding information sufficient to materially affect the issuance or trading of virtual assets. It is also prohibited to engage in “direct or indirect” manipulation acts that affect the price or supply and demand of virtual asset transactions.

Those who violate the rules face imprisonment of between 3 and 10 years, and fines ranging from NT$10 million to NT$200 million.

Gradually opening derivatives; stablecoin issuance not limited to banks only After the council meeting, FSC Vice Chairperson Chen Yan-liang said in a press briefing that for virtual asset derivative products, Taiwan will take a “gradual opening” approach rather than an all-at-once full rollout. He said that society’s understanding of virtual assets is still limited, so supervision must be advanced cautiously. There will not be a full opening, but there will also not be a complete restriction on space for innovation.

Regarding stablecoin issuance, Chen Yan-liang emphasized that there is no restriction that only banks may issue. Considering risk management, in the initial stage issuance will still primarily be handled by financial institutions or industry players with comparatively stronger capital and risk control capabilities. Later, the thresholds will be adjusted according to the nature of the business. After the parent law is passed, the subsidiary regulations will further specify requirements such as business scope and paid-in capital.

Huang Hou-ming, deputy director of the Securities and Futures Bureau (SFB) of the FSC, said that compared with the original draft, the version approved by the Executive Yuan’s Cabinet meeting made two important adjustments: (1) issuers must issue and redeem stablecoins according to their denominations and may not refuse redemption requests from holders; and (2) issuers are prohibited from providing interest or returns to the stablecoins they issue.

As for overseas virtual asset service providers (such as exchanges) coming to Taiwan to establish operations, Chen Yan-liang said the government holds a “positive, prudent, and friendly” attitude. With a premise that balances financial innovation and industrial development, the government will review applications in an open and inclusive spirit to attract high-quality operators to set up locally while also reducing regulatory gray areas.

Huang Hou-ming said that for the supervision of overseas virtual asset firms, there are three major points: (1) the review standards will be aligned with those applied to domestic operators; (2) they must comply with the anti-money-laundering regulations of the country where the operator is located; and (3) it must be assessed whether they will cooperate with our country’s judicial authorities in assisting investigations and crackdowns on illegal activities.

Transactions mainly regulated as online The draft regulates that transactions are mainly conducted online and aims to avoid cash transactions. Chen Yan-liang explained that the main purpose is to establish transaction trails that can be traced, thereby strengthening AML mechanisms and serving as a basis for the digital payments system. He emphasized that international oversight of virtual assets largely starts from AML and payment management, and Taiwan is taking the same direction.

Currently, Taiwan regulates VASPs through an AML registration system. As of March, a total of 8 businesses have completed registration, including: 5 that conduct businesses such as operating trading platforms, exchanges, custody, and transfers; 2 that conduct businesses such as exchanges, transfers, and custody; and another 1 that operates a transfer business.