A draft law now before the government marks Taiwan’s most comprehensive effort yet to regulate its virtual asset market.

BY YVONNE LIU AND PAUL CHANG

In response to the rapid development of virtual assets and innovations in financial technology, and to prevent virtual assets from becoming tools for illicit activities, the Taiwan Financial Supervisory Commission (FSC) announced the draft of the Virtual Asset Services Act (the Draft Act) on March 25, 2025. This is the first dedicated legislation governing virtual asset services providers (VASPs) in Taiwan, reflecting the regulator’s determination to strengthen supervision, protect investors’ rights and interests, and promote the orderly development of the industry.

The Draft Act’s public consultation period ended on May 24, and the draft was submitted to the Executive Yuan for review in June. Once the bill is formally passed by the Legislative Yuan after the required three rounds of deliberation and voting, Taiwan’s virtual asset services industry will enter a new, institutionalized regulatory environment.

Against this backdrop, the Draft Act’s most notable provisions illustrate the direction Taiwan’s regulators hope to take the industry, together with the potential impact on businesses and investors.

Clear definitions and rules

Until 2023, Taiwan regulated virtual assets largely through existing banking rules and a patchwork of limited measures, leaving the sector without a coherent legal framework. That year, the FSC issued management guidelines, but they were advisory only and carried no binding legal weight.

In 2024, anti-money laundering (AML) registration requirements established the first statutory definitions covering exchanges, custodians, and related service providers. But the regulations were limited to money laundering concerns and did not include the broader field of virtual asset oversight. This gap laid the groundwork for the Draft Act, which aims to move beyond piecemeal rules and establish a comprehensive regime.

At its core, the Draft Act seeks to bring clarity to a fast-moving sector. It clearly defines fundamental terms such as “virtual asset,” “stablecoin,” and “virtual asset business,” and categorizes VASPs by the types of services they provide, including exchange, transfer, custody/wallet, and issuance-related services.

The Draft Act also includes a catch-all clause that allows regulators to decide on a case-by-case basis, whether new types of virtual asset services fall under its scope. In practice, the FSC would serve as the main regulator, though its powers could be delegated. The catch-all provision is meant to ensure that future services, developed after the law takes effect, can still be brought under supervision.

In addition, it requires VASPs to obtain prior approval from the FSC and to join the Taiwan Virtual Asset Service Provider Association before commencing operations, ensuring that only vetted providers can serve investors in the Taiwan market. The legislation would also enable financial institutions to concurrently engage in virtual asset business upon approval. Through these licensing and membership requirements, the regulator seeks to strengthen supervisory powers, enhance legal compliance, and improve industry self-regulation.

In accordance with Taiwan’s Money Laundering Control Act, VASPs must register a company or branch in Taiwan and complete AML registration before offering services domestically. In practice, foreign providers will have to establish a presence in Taiwan and comply with the AML framework to operate legally in the market.

Internal controls and protection

Regulation of the sector is not limited to entry standards — it extends into how providers manage their businesses and protect clients. The Draft Act imposes common management requirements on VASPs, including financial standards, internal control and audit systems, segregation and safekeeping of client assets, disclosure obligations, and financial reporting requirements. It authorizes the FSC to formulate relevant rules and procedures, while allowing flexibility to adapt to evolving circumstances.

As part of these safeguards, a chapter of the Act is dedicated to the issuance and management of stablecoins, requiring issuers to obtain the FSC’s approval and to store and maintain sufficient reserve assets with domestic financial institutions. Stablecoins are cryptocurrencies designed to hold a steady value, typically pegged to a fiat currency such as the U.S. dollar. They are widely used by traders to move money between digital tokens without exposure to sharp price swings.

Given the strong correlation between stablecoins and legal tender, inadequate regulation of issuance and reserves could pose significant risks to financial stability and consumer interests. The supervisory framework aims to enhance market confidence and prevent potential systemic risks.

In addition, the Draft Act prohibits all forms of market manipulation and fraudulent conduct in virtual asset markets. (It is important to note that virtual assets are securities approved by the FSC and are thus subject to the Taiwan Securities and Exchange Act.)

To uphold these standards, the FSC is empowered to take necessary enforcement actions to protect public interest, safeguard investor rights, and maintain market integrity and order.

These measures include requiring VASPs to file financial or business reports, appointing attorneys to conduct inspections at the firms’ expense, and imposing disciplinary actions. Such actions can range from removing responsible personnel and suspending specific business activities to freezing or transferring assets, or even revoking a company’s license. If the VASP becomes unable to continue its business operations, the FSC may, within a prescribed period, arrange for another VASP to assume its business.

International alignment

In its announcement, the FSC noted that virtual assets, developed on distributed ledger and cryptographic technologies, are increasingly taking on the characteristics of financial instruments for payment and investment. This shift has given rise to new types of financial service providers distinct from traditional institutions, creating new vulnerabilities for investors and markets.

Efforts to rein in unregulated risks began as early as 2017 in places like the EU, Japan, South Korea, and Hong Kong. In Japan, for example, the Payment Services Act took effect after a series of high-profile crypto exchange hacks. Those incidents pushed regulators to toughen oversight of crypto asset exchange service providers.

In 2023, the International Organization of Securities Commissions released global policy recommendations for crypto and digital asset markets, focusing on market integrity and investor protection. The guidance came amid growing concern over the risks posed by unregulated crypto intermediaries and was intended to set a common regulatory baseline for cross-border activities.

Taiwan’s legislative intent is clear: to reinforce the legal foundation while guiding the virtual asset services industry toward lawful and compliant development, without stifling the potential for technological innovation.

A May 2025 hack of Taiwan-based crypto exchange BitoPro showed that the risks are far from theoretical. The exchange reportedly lost more than US$11.5 million after attackers gained unauthorized access to its hot wallets, exposing the fragility of Taiwan’s nascent crypto market. The breach highlights the urgency of the Draft Act, which aims to provide both legal clarity and practical safeguards if the sector is to grow securely and sustainably.

Compliance recommendations

The Draft Act covers a comprehensive range of regulatory requirements, from licensing, capital requirements, and internal control systems to financial reporting and statutory liabilities. The proposed legislation is not only a significant milestone in Taiwan’s digital financial regulatory framework but also a critical step toward the development of a mature virtual asset market. It is recommended that VASPs proactively review the Draft Act alongside the amended laws currently in force, ensure compliance with anti-money laundering obligations, and seek professional legal counsel to meet future regulatory requirements and mitigate legal risks, so as to ensure that their business operations remain uninterrupted.

Yvonne Liu is a partner and Paul Chang is an associate at Tsar & Tsai Law Firm, a Taipei-based firm with extensive experience in corporate, M&A, and capital markets matters.