The Taiwan Banker

Taiwan’s Virtual Asset Service Act (VASP Act) passed its 3rd reading in the Legislative Yuan on June 30, 2026, and was promulgated on July 22. The legislation marks a fundamental shift in the Financial Supervisory Commission’s (FSC) approach to virtual asset regulation, moving beyond a framework focused primarily on anti-money laundering (AML) toward comprehensive oversight of business operations, market conduct, and licensed activities. The new framework covers licensing for virtual asset service providers (VASPs), corporate governance, customer asset protection, trading platform management, stablecoin issuance, market misconduct, and investor protection. It also establishes requirements governing the scope of VASP activities, financial and operational standards, personnel qualifications, internal controls, cybersecurity, and financial reporting. Stablecoin issuers operating in Taiwan must obtain prior approval from both the FSC and the central bank. Foreign-issued stablecoins also require FSC approval before they can be traded through VASPs operating in Taiwan. Although the VASP Act has been enacted, much of its practical impact will depend on implementing regulations issued by the FSC and central bank. The FSC has indicated that nine sets of implementing regulations covering areas such as VASP establishment, personnel management, internal controls, outsourcing, stablecoin licensing, and industry association oversight will be introduced alongside the Act’s implementation. Consequently, the development of Taiwan’s virtual asset market will depend not only on the primary legislation but also on the stringency of its implementing rules, minimum capital requirements, compliance obligations, licensing procedures, and the scope for cooperation between banks and VASPs. Even before the Act was passed, the FSC had effectively screened market participants through the compliance costs associated with mandatory AML registration. The new licensing regime introduces another layer of scrutiny, requiring VASPs to obtain authorization for specific business activities. Given the different risk profiles of these activities, a tiered regulatory approach would be more appropriate than uniform capital requirements. One notable feature of the VASP Act is its inclusion of lending among the activities that licensed providers may undertake. Previously, arrangements that matched virtual asset borrowers and lenders, solicited funds from the public to purchase cryptocurrencies for lending, and promised guaranteed returns or unusually high yields could constitute illegal deposit-taking under Taiwan’s Banking Act, potentially resulting in criminal liability. Under the new framework, VASPs may conduct lending activities subject to appropriate risk controls. This could significantly improve liquidity in on-chain asset markets and allow stablecoin holders, whose holdings do not inherently generate interest, to earn clearly defined rewards through eligible activities. However, an April 2026 report by the Bank for International Settlements (BIS) warned that major global cryptoasset exchanges have increasingly come to resemble shadow banks, without comparable financial safety nets. The report uses the Financial Stability Board’s (FSB) concept of multifunction cryptoasset intermediaries (MCIs) to describe platforms such as Binance, Bybit, and Coinbase. These exchanges offer products and services including yield-generating programs, margin trading, collateralized lending, derivatives, and token issuance. Some closely resemble financial intermediation traditionally conducted by banks, yet MCIs generally lack the prudential safeguards applicable to institutions undertaking similar risk transformation activities. The terms governing yield products offered by major VASPs illustrate these concerns. Some authorize platforms to use assets deposited in programs such as Simple Earn without prior notification, grant broad and irrevocable discretion over assets committed to yield-generating products, or characterize individual transactions as unsecured loans provided for consideration. Such arrangements may expose customers to risks beyond those commonly associated with trading or custody services, bringing VASP business models closer to shadow banking. Another central feature of the VASP Act is its requirement that providers segregate customer assets from their own property. Following the collapse of FTX, safeguarding customer assets has become a major priority for regulators worldwide. However, accounting segregation alone does not necessarily ensure effective bankruptcy protection. Important questions remain regarding how virtual assets should be held separately, whether distinct on-chain addresses are required, the appropriate allocation between cold and hot wallets, whether customer assets may be pledged or reused, and customers’ legal rights if a provider becomes insolvent. Unlike bank deposits, virtual assets do not yet benefit from a mature and clearly established legal framework. If customer assets are recorded separately in a provider’s books but pooled in the same on-chain wallets, ownership disputes could still arise during insolvency proceedings. Effective segregation must therefore address both operational custody arrangements and the legal enforceability of customer claims. Stablecoin regulation is another important component of the new framework. The FSC has indicated a preference for initially limiting stablecoin issuance to banks, but relatively few banks worldwide have issued stablecoins directly. Australia’s ANZ, for example, has developed the A$DC stablecoin for on-chain payments associated with tokenized real-world assets (RWAs). France’s Société Générale has pursued stablecoin issuance through its subsidiary SG-FORGE. Many other major banks have instead focused on deposit tokens. From a bank’s balance sheet perspective, stablecoin issuance introduces a different set of risks and considerations from conventional deposit-taking. These distinctions will be important as Taiwan determines the appropriate regulatory treatment of bank-issued digital money. A further issue concerns a supplementary resolution adopted during the VASP Act’s 3rd reading. The resolution calls for consideration of a requirement under which foreign VASPs establishing branches or other business operations in Taiwan would transfer a specified proportion of Taiwanese customers to their domestic entities within a designated period. Although the resolution is not legally binding and serves only as a recommendation for further administrative review, implementation could prove difficult. For example, transferring customers from overseas platforms to domestic entities might require them to close existing international accounts, creating substantial operational challenges. The feasibility and implications of any such requirement will therefore need careful assessment. The passage of the VASP Act is not the end of Taiwan’s regulatory reform. Rather, it marks the beginning of a new phase in which the quality of regulatory implementation will determine the market’s development. The primary legislation establishes the regulatory framework, but the implementing regulations will determine how effectively it operates. Several issues warrant close attention: the relationship between domestic regulation and global markets, the balance between user protection and innovation, the growing convergence of virtual assets and traditional finance, and the complementary roles of institutional supervision and technology-enabled oversight. Taiwan has chosen a cautious approach to virtual asset regulation. The challenge is to preserve financial stability and protect market participants without unnecessarily limiting innovation and international engagement. Ultimately, the question is what role Taiwan intends to play in the global digital asset ecosystem. Will it develop into a secure but relatively closed virtual asset market, or establish a well-regulated yet internationally competitive digital asset industry? The answer will depend less on the passage of the VASP Act itself than on the regulatory choices that follow. The author is an Associate Research Fellow at the Financial Research Institute, TABF.