Financial Supervisory Commission upgrades cryptocurrency regulation, virtual assets enter the era of licensed businesses

The Financial Supervisory Commission Chairman Peng Jinlong recently presented a special report to the Legislative Yuan, announcing that virtual asset regulation will enter a new phase. Although the current approach is gradual, cautious, and friendly, with the advancement of the Virtual Asset Service Law, the FSC’s oversight of cryptocurrency operators will significantly increase, and in the future, they will be subject to “high-level supervision” standards similar to traditional financial institutions. This shift marks a new era of more regulated and institutionalized virtual asset markets in Taiwan.

From Registration System to Licensing Supervision: Comprehensive Enhancement of Regulatory Levels

Currently, the virtual asset market is still in its early development stage. According to statistics, less than 5% of Taiwanese hold cryptocurrencies, far below the 10-15% penetration rate in the US and South Korea. Despite the vast growth potential, the FSC emphasizes that the virtual asset market remains a “developing market” and has not yet reached the maturity level of traditional financial markets.

Under this understanding, the FSC’s stance is “not rushing but not wanting to fall behind.” Currently, nine virtual asset service providers (VASPs) have been approved and incorporated into the regulatory system. After the passage of the relevant law, the FSC will officially regard virtual asset operators as “quasi-financial institutions” for high-level regulation. This means that future operators will need to meet stricter capital requirements, establish comprehensive internal audits and control mechanisms, and maintain financial health according to certain standards.

Anti-fraud mechanisms will also be significantly strengthened. The current regulations only require “inter-industry information sharing,” but after the new law is implemented, it will expand to “cross-industry reporting,” forming a coordinated monitoring network across industries.

Strengthening AML/CFT Measures: 11 Operators Penalized This Year

Anti-money laundering (AML) and counter-terrorist financing (CFT) are current enforcement priorities for the FSC. According to inspection results, the FSC conducted financial inspections on 12 virtual asset operators this year and found deficiencies in AML, counter-terrorist financing, and weapons proliferation financing prevention.

The FSC’s Securities and Futures Bureau promptly issued fines to violators based on the inspection agency’s recommendations. To date, 11 operators have been fined, with total penalties exceeding NT$13 million. These enforcement actions reflect the FSC’s firm stance on market discipline and serve as an important reminder for cryptocurrency operators to comply.

Complete Framework of 8 Sub-legal Regulations: Implementation in the Next 12 Months

If the Virtual Asset Service Law is successfully enacted, the FSC is expected to complete the formulation of eight supporting sub-laws by the first half of next year. Seven of these will specifically target virtual asset service providers, covering a broad range of areas.

These seven sub-laws involve procedures for company establishment, financial management standards, internal audits and control mechanisms, information security maintenance, outsourcing regulations, fraud prevention, and abnormal transaction handling mechanisms. Additionally, VASPs will be required to implement strict asset segregation systems to ensure separation of customer assets from the company’s own assets, and establish margin and trust systems to enhance investor protection.

The FSC will also promote self-regulation through industry associations to help maintain market order and foster a collaborative mechanism between regulators and market participants.

Stablecoin Regulation Imminent: Banks to Be Priority Issuers

Among the eight sub-laws, the most notable is the regulation for stablecoin issuance and management. As an important tool within the cryptocurrency ecosystem, the regulation framework for stablecoins will cover issuer qualifications, minimum paid-in capital requirements, application procedures, types of stablecoins permitted, usage restrictions, grounds for license revocation, and the setup and periodic review of reserve assets.

The issuance and redemption processes of stablecoins will also be standardized to establish clear operational standards. The FSC initially favors banks with sufficient reserve assets to serve as stablecoin issuers to ensure the credibility and redemption capacity of stablecoins.

With the advancement of the Virtual Asset Service Law, the FSC’s supervisory level will officially upgrade from the current “AML registration system” to “licensing supervision,” significantly expanding the scope to include investor protection, financial stability, and market fairness. Meanwhile, the FSC will strengthen financial inspection mechanisms and anti-fraud capabilities to ensure market risks are manageable, transactions are secure, and to create a safer, more transparent environment for cryptocurrency trading.