What Happened?
The Financial Supervisory Commission (FSC) has announced the draft of the Virtual Asset Service Act and plans to hold several public hearings before submitting it to the Executive Yuan. This indicates that the regulatory authority is actively seeking broad input from the industry, academia, and other stakeholders through a formal legislative process to establish a clear regulatory foundation for virtual asset services.
Industry associations and operators generally suggest that the intensity of regulation should adopt a tiered management approach based on the risk level and scale of operations of the businesses (with a coexistence of licensing and registration systems). They also recommend extending the transition period and hope that the regulations can moderately open up a more diverse range of businesses (such as derivative products) while providing clear standards for listing and delisting to balance innovation and competitiveness.
In light of the recent surge in virtual asset-related fraud and money laundering cases, the FSC’s Inspection Bureau is simultaneously conducting special inspections of VASP operators that have completed compliance declarations under the Anti-Money Laundering Act. The focus of these inspections includes anti-money laundering, combating the financing of terrorism, consumer protection, and fraud prevention measures, demonstrating the determination to curb illegal activities through enforcement actions.
Draft of the Virtual Asset Service Act: Broadly Soliciting Opinions for Comprehensiveness
The Taiwanese financial regulatory authority is actively advancing the establishment of a regulatory framework for Virtual Asset Service Providers (VASP). In addition to vigorously proceeding with the legislative process for the Virtual Asset Service Act draft, it is also soliciting opinions from various sectors to improve the regulatory foundation, while simultaneously initiating special inspections of VASP operators that have completed compliance declarations under the Anti-Money Laundering Act, showcasing a regulatory strategy that combines both legislative and enforcement efforts.
Recently, the FSC announced the draft of the Virtual Asset Service Act and commenced an intensive series of public hearings. According to reports from Commercial Times, FSC Chairman Peng Jinlong stated that at least 22 public hearings will be held to fully gather valuable opinions from industry, academia, and society to ensure the comprehensiveness and feasibility of the legislative content before presenting it to the Executive Yuan.
What Do Industry Operators Think?
The industry generally advocates for a “gradual” and “tiered management” principle for the upcoming specialized law. Considering the diversity and innovativeness of the virtual asset sector, the intensity of regulation should vary according to the risk level and operational scale of the business, rather than applying a one-size-fits-all approach.
Meanwhile, the industry also hopes that under controllable risks, local operators will be allowed to engage in more diversified virtual asset products, such as the recently popular virtual asset derivative financial products (ETFs, perpetual contracts, dual currency options, etc.), to avoid business opportunities being transferred to overseas platforms due to regulatory restrictions, which would undermine the competitiveness of local operators.
Peng Yunxian, founder of HOYA BIT, pointed out that establishing clear review standards and processes for the listing and delisting of cryptocurrencies is crucial for market stability and transparency, which helps enhance investor confidence. She suggested that when implementing delisting mechanisms, a warning system and a buffer period should be set up to reduce the risk of excessive market volatility due to unforeseen circumstances. Regarding stablecoins, she also emphasized the need for issuing organizations to maintain sufficient reserves and regularly disclose audit reports to enhance asset security and the reliability of exchanges.
What Do Associations Think?
The VASP Association of the Republic of China suggested during the public hearings that the model of the Electronic Payment Institution Management Act could be referenced to implement varying levels of supervision for operators based on risk levels and the amount of assets held. For example, stricter “licensing systems” could be applied to larger operators with higher asset holdings, while relatively lower-risk operators could maintain the existing “registration system.”
In addition, the association also recommended extending the transition period for operators after the law comes into effect from six months to twelve months, giving operators more ample time for adjustments and preparations, drawing from Hong Kong’s experience in combating terrorism financing.
What Do Scholars Think?
From the academic perspective, Associate Professor Yang Yueping from National Taiwan University College of Law provided feedback on the draft’s content and the industry’s suggestions. He believes that while the draft does not currently detail all execution specifics, the existing registration system already has a preliminary framework for tiered management based on business types and risk levels.
He supports that the main body of the law should not be overly detailed in its stipulations to avoid difficulties in future adjustments, leaving more execution details to be regulated under special laws through subsequent regulatory orders or administrative rules, which would provide greater flexibility.
Professor Yang particularly noted that the inclusion of “virtual asset lending business” in this draft is a new addition compared to the existing registration system and is a relatively less regulated area internationally, regarded as an important breakthrough. This business allows investors to lend assets (such as stablecoins) to operators and potentially earn interest returns.
According to scholars’ estimates, the specialized law on virtual assets will take at least two to three years from submission to the Executive Yuan until it completes the legislative three readings and is formally implemented. During this period, the FSC and the industry still have extensive communication and preparation work to undertake.
FSC Inspection Bureau Takes Action: Strengthening Law Enforcement Against Malpractices
In tandem with the legislative process, the FSC is conducting on-site inspections of registered VASP operators. Recently, the Taiwanese crypto market has been overwhelmed with incidents involving money laundering and fraud, prompting significant public concern, leading the FSC to enhance law enforcement efforts.
Deputy Director Guo Wenlong of the Inspection Bureau stated that as of the end of March this year, a total of 21 VASP operators have completed compliance declarations under the Anti-Money Laundering Act and applied for registration. Since 2023, the Inspection Bureau has scheduled inspection plans based on the operational scale and risk levels of VASP operators. By the end of last year, inspections of 10 operators had been completed, with plans to conduct special inspections on an additional 12 VASP operators that have applied and completed the compliance declarations this year.
Guo Wenlong pointed out that the targets of the Inspection Bureau’s scrutiny will focus on these 21 operators. Considering that two of the 10 inspected last year were unregistered operators, and that this year has already inspected Cointhink Technology, it is anticipated that there are still 12 operators pending inspection. The Inspection Bureau will strive to include these 12 operators in this year’s inspection plan as manpower allows.
This year’s special inspection of VASP operators will cover multiple aspects, including the implementation of regulations on anti-money laundering (AML), combating the financing of terrorism (CFT), and countering the proliferation of weapons (CPF), as well as ensuring that consumer protection measures for investors are in place, with a particular focus on fraud prevention-related control measures.
References: Commercial Times, Commercial Times