Taiwan���s Cabinet Expected to Discuss Proposed New Legislation Regulating Virtual Asset Services Shortly

Currently, there is no specific legislation in Taiwan governing virtual asset services and transactions. Cryptocurrency exchanges and other virtual asset service providers are not subject to any regulatory franchise or licensing requirements but rather the registration and other compliance requirements set forth by anti-money laundering laws. Licensed banks and other financial institutions, on the other hand, are prohibited from providing services related to virtual asset transactions.

To establish a regulatory framework for the virtual assets services, Taiwan���s financial regulator, the Financial Supervisory Commission (���FSC���), has proposed a draft new legislation named Virtual Asset Services Act (Draft VASA). It is reported that the Draft VASA has scheduled to be submitted to the Cabinet (Executive Yuan of Taiwan) for its review and discussion in June. Notable points regulating the virtual asset related services under the Draft VASA is outlined below:

1. Virtual assets are defined as a digital representation of value using cryptography and distributed ledger technology or other similar technology that can be digitally stored, exchanged, or transferred, and can be used for payment or investment purposes, excluding: (i) digital forms of New Taiwan Dollars, foreign currencies, and currencies issued in Mainland China, Hong Kong, or Macao; digital forms of securities; and digital forms of other financial assets issued in accordance with applicable laws and regulations (such as futures and deposit); and (ii) non-fungible tokens (NFTs) that represent unique, non-interchangeable value. Stablecoins fall into the definition of virtual assets and will be regulated by this new legislation.

2. Virtual asset services to be regulated by the new legislation include (i) exchange between virtual assets and New Taiwan Dollars, foreign currencies, or currencies issued in Mainland China, Hong Kong, or Macao; (ii) exchange between virtual assets; (iii) transfer of virtual assets; (iv) custody or management of virtual assets, or instruments used to control virtual assets; (v) issuance or sale of virtual assets; (vi) acquisition of virtual assets with an agreement to return or deliver the same or a greater quantity or value of virtual assets, and the related services,.

3. Engaging in any of the regulated virtual asset services is subject to prior approval from the FSC and the license issued by the FSC. The said approval and license will specify the approved and licensed service or services. Adding any new service is subject to separate and additional approval and licensing from the FSC. Setting up a branch or other physical business presence is also subject to additional approval from the FSC.

4. Offshore virtual asset service providers (meaning those licensed to provide their virtual asset services regulated by the new legislation in countries other than Taiwan) will be allowed to provide services in Taiwan provided that they have secured prior approval and a license from the FSC for them to do so.

5. Domestic licensed virtual asset service provider shall be a company incorporated as a company limited by shares pursuant to Taiwan���s Company Act. No foreign investment cap or other restrictions apply to the said company.

6. Minimum capital and business performance bond requirements will apply to licensed domestic and offshore virtual asset service providers. The FSC is authorized to establish such requirements.

7. Taiwan-licensed banks and other financial institutions will be allowed to engage in the virtual asset services subject to prior approval from the FSC.

8. Debt caps, debt-to-net asset ratios, and current liability-to-current asset ratios of the licensed virtual assets services providers shall be subject to criteria set forth by the FSC.

9. Issuing stablecoins within the territory of Taiwan is subject to prior approval from the FSC. The qualification of issuer, approval application procedures, use of stablecoins and other details will be set forth by the FSC.

10. Providing false information in connection with the issuance or trading of virtual assets as well as market manipulation, will be subject to criminal liability and damage compensation.

11. The existing virtual assets service providers that have completed anti-money laundering registration with the FSC before the implementation of this new legislation are required to apply for approval from the FSC within six months after the new legislation comes into force, and a license must be obtained from the FSC within fifteen months after this new legislation comes into force.

Once the Cabinet approves the Draft VASA, the Draft VASA will be presented to Taiwan���s Legislative Yuan (the Congress) for reviewing and final approval.

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