Challenges and Opportunities in Regulating Taiwan’s VASP

As virtual asset service providers (VASP) rapidly grow in the global fintech landscape, Taiwan is gradually improving its regulatory framework. From compliance declarations to a registration system, and soon to be introduced licensing system, the Financial Supervisory Commission (FSC) of Taiwan is moving towards stricter regulations.

This transformation presents a situation of both challenges and opportunities for the virtual asset market. This article will explore the impact of the current regulatory framework on Taiwan’s VASP ecosystem, analyzing potential enforcement challenges, market opportunities, and future development directions.

Regulatory Evolution: Transition from Loose to Strict

The regulation of VASP in Taiwan has undergone three phases:

• Compliance Declaration (2021-2024): Operators only need to submit anti-money laundering (AML) declarations, which is a self-regulation phase.
• Registration System (Starting 2024): The “Registration Rules for Businesses or Individuals Providing Virtual Asset Services” requires operators to register with the FSC, submit internal control systems, and accept supervision.
• Licensing System (Expected after 2025): In the future, VASP will be required to obtain a license, meeting capital and personnel qualification conditions, with unauthorized operations potentially leading to up to 7 years of imprisonment and fines of 20 million New Taiwan Dollars.

This evolution indicates that Taiwan is transitioning from a relaxed exploratory phase to a mature regulatory framework, gradually aligning with international standards (such as FATF recommendations). Interested readers may refer to my other article for a detailed explanation: “Analysis of the Evolution of Taiwan’s VASP Regulation: From Compliance Declarations to Registration System, and Moving Towards Licensing System.”

Challenges: Compliance Pressure and Enforcement Difficulties

Compliance costs are squeezing the survival space of small and medium-sized enterprises:

The current registration system requires operators to submit detailed internal control documents and undergo verification by accountants, and the future licensing system may further raise capital and technical thresholds. For small and medium-sized enterprises (especially OTC coin dealers), the increase in manpower and capital costs may be unbearable. For instance, custodians need to strengthen cold and hot wallet management, which poses challenges for small operators with limited technical capabilities. As a result, the market may accelerate consolidation, leading to the exit or acquisition of small operators.

Offshore jurisdictions beyond regulatory reach:

Even with stricter regulations, offshore VASP may still serve Taiwanese users through VPNs or other technical means. International experience shows that comprehensive bans in China and licensing systems in Japan have not completely eradicated unauthorized operations. If Taiwan cannot effectively block these platforms or collaborate internationally to track cross-border transactions, the deterrent effect of regulation will be limited.

The balance between innovation and regulation:

Overly stringent regulations may stifle emerging applications such as decentralized finance (DeFi) or NFT platforms. While the current registration system encompasses a broad definition of virtual assets, regulatory details for these new areas remain unclear, leaving operators struggling between compliance and innovation.

Opportunities: Market Maturity and Enhanced International Competitiveness

Increased market transparency and investor confidence:

As the regulatory environment becomes clearer, high-net-worth clients and listed companies in Taiwan are showing a greater willingness to participate in the virtual asset market. For example, the asset isolation and information disclosure requirements under the registration system reduce fraud risks, while further regulations under the licensing system may promote the integration of traditional finance and virtual assets. This aligns with international trends—as seen with U.S. institutional investors and companies (such as MicroStrategy) actively positioning themselves in cryptocurrencies due to improved compliance environments.

Opportunities for financial institutions and large operators to expand:

Financial institutions (such as banks, electronic payments, etc.) may accelerate the integration of virtual asset services due to clearer regulations, offering cryptocurrency payment or settlement functions. For large VASP with sufficient capital and mature technology (such as local exchanges), strict regulations represent not only challenges but also expansion opportunities. These operators can easily meet compliance requirements, capturing market share after small operators exit, and collaborating with payment companies to explore new business.

Strengthening international standing and aligning with trends:

Taiwan’s regulatory framework references international practices (such as the EU’s MiCA and Japan’s Fund Settlement Law), demonstrating potential to become a leader in virtual asset regulation in Asia. With the implementation of the licensing system, Taiwan may attract more international VASP and high-net-worth investors, gaining recognition in organizations such as FATF. This aligns with global trends—compliance markets are becoming the preferred choice for high-net-worth clients and enterprises to enter.

Conclusion and Outlook: Who Wins and Who Loses?

Winners: Large exchanges and custodians that can bear compliance costs and benefit from market consolidation.

Losers: Small and medium-sized OTC operators and technologically lagging platforms that may exit due to failure to meet standards.

Unknowns: Offshore operators that evade regulation may still capture local market share, testing enforcement capabilities.

The gradual upgrade of Taiwan’s VASP regulation presents both challenges and opportunities. For operators, compliance costs and enforcement loopholes are short-term pain points, but in the long run, a stable regulatory environment will drive market maturity and attract international attention. If the FSC can find a balance between strict regulation and industry development, drawing on international experience and making flexible adjustments, Taiwan may not only solve current problems but also become a benchmark in the Asian virtual asset market.

For VASP operators, adapting to rules and seizing opportunities is crucial—only those who survive this regulatory evolution will be the winners.