FSC to Gradually Regulate Virtual Asset Industry; Draft Special Law Expected by Year-End

Last Updated: June 12, 2024

To prevent virtual assets and trading businesses (VASPs) from becoming tools for fraud, Financial Supervisory Commission (FSC) Chairman Peng Jin-long stated in the Legislative Yuan on June 12 that the FSC will introduce regulation in four gradual stages. A draft of the Virtual Asset Management Act is expected by the end of 2024.

In addition, virtual asset businesses will form an industry association on June 13. Peng explained that once the association is established, it will provide a dialogue channel between regulators and industry, incorporate self-disciplinary penalties, and impose criminal liability on unregistered operators.

He emphasized that virtual assets’ anonymity, cross-border nature, and difficulty of tracing make them fertile ground for fraud, and countries worldwide are strengthening oversight.

Currently, 25 VASPs have completed AML compliance statements, covering various business models such as exchange platforms, physical crypto ATMs, and custodial service providers.

However, overseas crypto exchanges conducting cross-border transactions via the internet remain difficult to supervise. With over 20,000 virtual currencies in existence, questions have arisen in the legislature about how the FSC can regulate activities such as proxy storage and proxy purchases.

DPP legislator Wu Ping-jui asked: “People don’t need to buy from local operators—they can go online anywhere globally. If our financial flows go overseas, how will we cooperate with foreign authorities?”

Peng replied: “This is indeed an issue requiring international cooperation. We hope to work through future global organizations to address this problem.”

KMT legislator Lai Shyh-bao noted: “There are more than 22,000 virtual currencies now, and the concept of virtual assets is still evolving. Anyone can issue a token, but whether it has value depends on the market.”

Peng responded: “That’s exactly why fraud groups find this so exploitable. This is a key challenge ahead.”

Lawmakers also questioned the effectiveness of self-regulation once the association is established, and whether bad actors might use it to “whitewash” their operations.

DPP legislator Kuo Kuo-wen remarked: “If many members have questionable backgrounds, what kind of self-regulation can we really expect?”

Peng stressed: “The establishment of the association is itself an important first step in supervision.”

Separately, KMT legislator Wang Hung-wei raised concerns that the Ministry of Justice’s main cooperative partner is Binance. Deputy Justice Minister Hsu Hsi-hsiang clarified: “This was not chosen by the Ministry; it was arranged by prosecutors.”

Peng reiterated that once the association is formed, regulators will have a communication channel with industry, with self-disciplinary rules and penalties, and unregistered operators will face criminal liability.

The FSC plans to present the draft Virtual Asset Management Act by December 2024, followed by a regulatory notice and public hearings. The draft will then be adjusted based on feedback, with the goal of submitting the bill to the Executive Yuan by June 2025.