Taiwan Takes First Steps Toward Regulating Crypto With New Bill

 
Taiwan introduced a cryptocurrency bill to the Legislative Yuan for its first reading, marking the country's first move toward regulating digital assets.

The draft bill known as the Virtual Asset Management Ordinance aims to identify virtual assets, provide guidelines for asset operators in terms of operations, guarantee the safety of customers, and require membership in trade associations and regulatory clearances.

The nation has so far mostly ignored and allowed the industry to operate unchecked, simply regulating it in accordance with the anti-money laundering and know-your-customer statutes already in place. After the cryptocurrency exchange FTX collapsed in November of last year, the regulatory process quickened because Taiwanese people were drawn to the site because of its attractive U.S. dollar interest rates in comparison to those offered by local banks.

In contrast to Hong Kong's bordering crypto regulations, the bill does not take a firm stance on derivatives or stablecoins. It does, however, recognize that derivatives associated with virtual assets have special qualities (perpetual contracts are particularly acknowledged) that might not fully correspond with conventional financial standards; this leaves the door open for a future draft to include provisions specifically for crypto derivatives.

Furthermore, it does not limit professional investors' access to trade virtual assets.

Additionally, the draft bill only mandates the separation of consumer assets from corporate funds, in contrast to Japan, which expressly mandates the employment of custodians for exchanges with local licenses. It does not state clearly that third-party custodians must be used.

The measure mandates that exchange operators commission accountants to provide reports on a regular basis regarding their operations and the assets they oversee. It also mandates that they permit frequent audits and internal control system inspections by regulatory bodies like the Financial Supervisory Commission (FSC).

Although the Proof of Reserves provision is not expressly mentioned in this draft bill, it does state that the regulator will establish asset ratio guidelines following industry consultation and that regulated exchanges will be expected to follow them.

In the past, participants in Taiwan's cryptocurrency sector have expressed their appreciation for official regulatory monitoring.

In order to establish regulatory operations, the virtual asset service provider industry and the FSC should work together, according to Wayne Huang, co-founder and CEO of Taipei-based fintech XREX, as previously reported by CoinDesk.