Taiwan is currently in the works of regulating the crypto industry.
Taiwan’s crypto bill called the “Virtual Asset Management Ordinance Draft” proposes on defining what digital assets are, establishing standard operating procedures for exchange operators, guaranteeing customer funds protection, and requiring memberships in industry associations.
Taiwan’s Approach in the Crypto Sector
Taiwan used to have a lenient stance on cryptocurrencies. The government only regulated the industry by applying existing laws related to know-your-customer (KYC) and anti-money laundering (AML) measures.
The regulatory push only progressed after the collapse of the FTX crypto exchange in November 2022. And in March 2023, the government announced that it would be developing special legislation to regulate the industry.
Balancing Flexibility and Oversight
The bill is co-authored by seventeen Taiwanese lawmakers believing that crypto assets are a different kind of asset class and would require specific regulations due to their distinct differences between traditional financial instruments.
The bill includes guidelines from the Financial Supervisory Commission (FSC) with additional amendments to the existing rules.
Logically, the FSC will be granted full authority to cover areas in AML regulations, customer security, and privacy. The Commission is scheduled to contribute to the bill, and the date for the second hearing in the Legislative Yuan has not yet been confirmed.
Read: Taiwan Tightens Rules, Bans Unregistered Foreign Crypto Exchanges
Ensuring Accountability and Transparency
Crypto exchange operators will need to validate that auditors would regularly submit reports, allow regulatory supervision, and comply with the standards established by the Commission.
The preliminary legislations do not particularly address Proof of Reserves (PoR). This could imply that regulators will work collaboratively with industry leaders to establish asset ratio standards that licensed crypto exchanges will be obligated to follow.
Read: Taiwan Progresses Towards Special Crypto Law To Regulate Offshore Exchanges
Industry’s Positive Reception and Collaborative Approach
Multiple appeals have been made to form a collaboration and consensus-building among various sectors of society to refine the bill further.
Stakeholders in Taiwan’s crypto industry expressed a positive outlook on formal regulatory oversight and plan to collaborate with the FSC in defining regulatory operations.
Final Thoughts
The bill aims to provide better protection for the customers and properly supervise the industry. The 30-page bill appears moderate in its demand for the industry as it suggests some common sense obligations for the virtual asset service providers (VASP) such as separating customer funds from the company’s reserve funds, establishing the internal control and audit system, and joining the local trade association.
However at this point, it does not require stable coin issuers to hold a 1:1 ratio of reserve funds and it does not mention algorithmic stablecoins as to marketing activities.
The bill will likely go through further improvements, factoring in the input from stakeholders and government authorities.