Taiwan Crypto Regulation Process Takes Shape With First Reading of Digital Asset Bill

Jimmy Aki
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Taiwan’s Parliament has passed the first reading of a proposed cryptocurrency framework bill to address offshore market concerns and drive a more stringent policy to control the digital asset industry.

Proposed Bill Mandates Permits for Crypto Service Providers

East-Asian Country Taiwan has introduced its first steps toward regulating its burgeoning crypto landscape by proposing a Virtual Asset Management Ordinance Draft bill, which has passed its first hearing at the Legislative Yuan.

The 30-page bill was co-authored by 17 lawmakers who believe cryptocurrencies and their service providers differ from traditional finance products and require a separate framework.

The Virtual Asset Management Ordinance Draft bill aims to introduce and create oversight over the broader crypto industry.

While the Taiwan Financial Supervisory Commission (FSC) had previously released a framework for the digital asset sector, the proposed bill will provide legal enforceability for crypto-centric platforms the guidelines lacked.

This includes clarity on assets, operational standards for service providers, and investor protection.

Currently, Taiwan’s virtual asset service providers (VASPs) are yet to comply with previous anti-money laundering laws, leaving the crypto sector largely unregulated.

However, this wouldn’t be for too long as the proposed bill would upheave all irregularities through regulatory licenses.

This means the crypto-based platforms and other digital assets providers must obtain a regulatory permit, a much-needed step to curb investment risks and protect customers.

Furthermore, the FSC will be granted optimal authority to regularly inspect exchanges and market trajectories to enhance transparency and identify potential market manipulation.

Unlike policies in Hong Kong, the Virtual Asset Management Ordinance Draft bill does not take a strong position on derivatives or stablecoins or restrict the trading of assets to advanced investors. Additionally, traders are not explicitly mandated to use third parties custodians.

Currently, there’s no official timeline for the second reading of the bill at the Legislative Yuan Parliament.

Yung-Chang Chiang, a member of Taiwan’s Parliament and co-author of the bill, expressed high enthusiasm that the FSC can submit its version of a proposed bill to the legislature before the second reading.

FTX Crypto Blow Propelled Taiwan Spate of Frameworks

Prior to the latest release of guidelines and a draft bill by the FSC and Taiwan’s Parliament, respectively, the East-Asian country only addressed assets under the money-laundering framework.

In September 2022, authorities approved 24 cryptocurrency service providers under its anti-laundering (AML) compliance system.

However, the liquidation of the FTX derivative and investment exchange, alongside Alameda and the ongoing trial of Sam Bankman-Fried (SBF), has sent waves of urgency to Taiwan’s regulatory bodies.

According to a local report, the Taiwanese were one of the largest users of the defunct exchange per capita due to their high interest rates for US dollar deposits compared to traditional banks.

With a draft bill nearing approval, the East-Asian country aims to create a strict, efficient, friendly landscape that favors all players and keeps investors safe.

Looking Ahead: What Can FSC Oversight Bring?

Crypto experts believe the FSC regulatory oversight on VASPs will drive the segregation of proprietary and customer assets.

The separation is significant because it enhances the security and transparency of cryptocurrency platforms. It means customer funds, such as cryptocurrencies or tokens, are kept separate from the company’s funds.

This will be followed by an established review of standards for digital assets listing and delisting and a strong clampdown on offshore exchanges that fail to comply with regulatory operation permits.

However, the Taiwan financial watchdog won’t regulate the non-fungible tokens (NFTs) landscape. Huang Tien-mu, the chairperson of FSC, stated in a local media report that the NFT is an emerging market, hence why control may be too early.

Tien-mu further cited that the extendability and composability of NFT can represent a broader spectrum of assets ranging from commercial products to commodities and securities.

Therefore, the agency’s major focus will be on the crypto industry, as more time will be needed to develop a proper framework for NFT.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.