Financial Supervisory Commission shifts to strict regulation of virtual currencies, with 8 sub-laws and 11 penalties issued annually

The Financial Supervisory Commission recently proposed a new virtual asset regulation framework to the Legislative Yuan, declaring that the supervision and management of the virtual currency industry will be comprehensively upgraded. According to FSC Chairman Peng Jinlong, after the enactment of the specialized law, virtual currency operators will face “high-level supervision” standards comparable to financial institutions. Since the beginning of this year, the FSC has penalized 11 operators, with total fines exceeding NT$13 million, demonstrating the FSC’s firm enforcement stance.

Evaluation of the Virtual Currency Market and Shift in Regulatory Strategy

Although virtual currencies have experienced rapid growth in recent years, there is still a significant gap in investment penetration among Taiwanese citizens. Statistics show that less than 5% of Taiwanese hold cryptocurrencies, far below the 10% to 15% levels in the United States and South Korea. Some legislators question whether the FSC’s push is too conservative, but the FSC’s stance is clear — the virtual currency market is still in the development stage and has not yet reached the maturity of traditional financial markets.

The FSC emphasizes that countries worldwide are in the process of establishing regulatory frameworks, adopting a balanced strategy of “not rushing but also not wanting to fall behind.” This means the FSC will promote virtual currency regulations cautiously, while keeping abreast of the latest international regulatory developments to ensure Taiwan’s policies protect consumers without losing market competitiveness.

Inclusion of Operators Under Quasi-Financial Regulatory Standards

According to the newly announced regulatory direction, virtual currency service providers (VASP) will be reclassified as “quasi-financial institutions” and subjected to stricter oversight. This implies that operators’ capital requirements, internal audits, internal controls, and financial statements must meet certain standards, equivalent to those of traditional financial institutions.

The FSC has approved nine virtual asset service providers to operate, and after the passage of the Virtual Asset Act, these operators will need to complete upgrades and transformations. Notably, the anti-money laundering (AML) system will also be expanded — current regulations only require “information sharing among industry peers,” but future regulations will extend this to “inter-industry reporting,” enabling regulators to detect abnormal transactions across different sectors.

Strengthening Enforcement and Improving the Regulatory System

The FSC’s supervision of virtual currency operators is not limited to planning; enforcement actions have already begun. This year, the FSC conducted special inspections on 12 virtual asset companies and identified deficiencies in key areas such as anti-money laundering, counter-terrorism financing, and measures to prevent the proliferation of weapons of mass destruction. Based on the inspection results, the FSC issued fines to 11 operators, totaling over NT$13 million, demonstrating its resolve to not tolerate violations.

Meanwhile, the FSC is drafting supporting sub-laws for the Virtual Asset Act. Once the legislation is smoothly enacted, the FSC aims to complete the formulation of eight sub-laws by the first half of next year. Seven of these will target virtual asset service providers, covering areas such as company formation, financial management, internal audits and controls, cybersecurity, outsourcing, anti-fraud measures, and abnormal transaction handling. Additionally, the FSC will promote industry self-regulation through the establishment of industry associations to help maintain market order.

Stablecoin Regulation and Market Order Enhancement

Among the eight sub-laws, the most notable is the “Stablecoin Issuance and Management Measures.” Through this regulation, the FSC will clearly specify the qualifications for stablecoin issuers, minimum paid-in capital, application procedures, types of tokens that can be issued, use cases, reserve asset requirements, periodic audits, and operational procedures for issuance and redemption.

The FSC initially favors banks with “sufficient reserve assets” to serve as stablecoin issuers to ensure the backing strength of stablecoins. For virtual currency operators, future requirements will include strict separation of proprietary assets and customer assets, as well as the establishment of margin and trust systems to enhance transaction participant protection.

With the advancement of the Virtual Asset Act, the FSC’s supervisory level will officially elevate from the current “Anti-Money Laundering Registration System” to “Licensed Business Supervision,” expanding oversight to include transaction participant protection, financial stability, and market fairness. The FSC commits to further strengthening financial inspection mechanisms and anti-fraud measures to ensure that risks in the virtual currency market are manageable and transactions are secure, aiming to create an open yet regulated virtual currency ecosystem.