Taiwan Legislature Passes First Reading of Virtual Asset Special Law, Clarifies Stablecoin Issuance Rules

(Central News Agency, Taipei, June 3, Reporter Chen Junhua) The Finance Committee of the Legislative Yuan today passed the first reading of the "Virtual Asset Service Act" draft, strengthening the supervision of VASPs, requiring them to obtain permission from the competent authority before commencing operations. It clearly defines the issuance and management of stablecoins, mandating that issuers establish and maintain full reserve assets, segregated from their own property. To prevent unfair market practices, penalties for fraud or manipulation have also been established.

To foster the sound operation and development of the virtual asset industry, protect the rights and interests of traders, and enhance market trust, the Executive Yuan passed the draft of the Virtual Asset Service Act on April 2. The Finance Committee of the Legislative Yuan today invited Financial Supervisory Commission (FSC) Chairman Peng Jin-lung to attend and continue reviewing the draft.

The FSC noted that with the rapid development of the virtual asset market and increasing money laundering risks, major countries have successively incorporated VASPs and stablecoins into their regulatory frameworks, mostly by enacting special laws, such as the EU, South Korea, and Japan. A special law will allow Taiwan to respond to international stablecoin development trends and permit the issuance of stablecoins domestically.

Regarding the strengthening of VASP supervision, the passed articles stipulate that VASPs must obtain permission from the competent authority according to the type of business before operating. Those without permission or a license, unless otherwise stipulated by the competent authority, shall not operate any virtual asset business. The commencement, suspension, resumption, closure, dissolution, and changes in business scope of a VASP must be approved by the competent authority.

The passed articles require VASPs to establish internal control and audit systems to manage business-related risks and comply with relevant laws. They must also establish information and communication security management systems, operational information management and confidentiality policies, and formulate business continuity policies.

Regarding stablecoin issuance, the passed articles define a stablecoin as "a virtual asset that is linked to the value of one or more fiat currencies to maintain its value stability." To issue stablecoins, the issuer must apply for permission from the competent authority, and the permission must be granted with the consent of the Central Bank.

The passed articles mandate that stablecoin issuers establish and maintain full reserve assets, deposited in domestic financial institutions. These reserve assets must be segregated from the issuer's own property. Except for reserves deposited as required, all assets must be fully entrusted to a financial institution for custody and subject to periodic audits. Stablecoin issuers shall not pay any form of interest or returns on the stablecoins they issue.

To protect the rights of stablecoin holders, the articles stipulate that non-holders of the stablecoin cannot exercise any rights over the reserve assets. In the event of the stablecoin issuer's bankruptcy, the reserve assets do not form part of the bankruptcy estate, and stablecoin holders have priority rights to claim against these reserve assets.

To prevent future fraud or manipulation in the virtual asset market that could affect the rights of traders and the integrity of the market, the passed articles prohibit false, fraudulent, concealed, or misleading conduct regarding information that could significantly affect the issuance or trading of virtual assets. They also prohibit any direct or indirect manipulation that affects the trading price or supply and demand of virtual assets. Violators face imprisonment for 3 to 10 years and may be fined between NT$10 million and NT$200 million.

Recognizing that businesses need time to rebuild and adjust their internal controls and information security management to meet the new licensing standards, the passed articles stipulate that VASPs that have completed anti-money laundering registration before the act's enforcement must apply for permission from the competent authority within 12 months of the act's enforcement and obtain a license within 21 months.

Additionally, the Finance Committee passed a附带決議 (subsidiary resolution) requesting the FSC to propose a plan within one year of the act's passage to allow virtual asset businesses to offer derivative virtual asset products and services, providing users with more diverse market services and fostering industry development. (Editors: Lin Ke-lun, Zhai Si-jia) 1150603