Taiwan has taken a significant step toward regulating digital assets by presenting a cryptocurrency bill to the Legislative Yuan for its initial consideration. Known as the Virtual Asset Management Ordinance Draft bill, this proposed legislation seeks to provide a foundation for crypto regulation in the country. The bill aims to establish a framework for virtual assets, ensuring operational standards for entities handling them, customer protection, and regulatory permissions, along with a requirement for these entities to become members of industry associations.
Taiwan has historically maintained a relatively hands-off approach to the digital asset sector, subjecting it primarily to existing anti-money laundering and know-your-customer regulations. However, there has been a noticeable shift in regulatory approach following the collapse of the cryptocurrency exchange FTX, which had gained popularity among Taiwanese users due to competitive US dollar interest rates compared to local banks.
Key Points of the Proposed Bill:
- Derivatives and Stablecoins: Unlike neighboring Hong Kong’s crypto regulations, the proposed bill does not take a strong stance on derivatives or stablecoins. It does, however, recognize that derivatives linked to virtual assets have distinct features, leaving room for potential future regulations focused on crypto derivatives.
- Trading Accessibility: The bill refrains from limiting the trading of virtual assets to professional investors, in contrast to Japan’s approach. It mandates the segregation of customer assets from business funds but does not explicitly require third-party custodians.
- Operational Oversight: Operators of exchanges are required to engage accountants to provide regular reports on their operations and asset management. Regulatory bodies, such as the Financial Supervisory Commission (FSC), are granted the authority to conduct routine inspections of internal control and audit systems.
- Asset Ratio Standards: Although not explicitly mentioning “Proof of Reserves,” the bill indicates that regulators will establish standards for asset ratios in consultation with the industry, with licensed exchanges expected to adhere to these standards.
Stakeholders in Taiwan’s cryptocurrency industry have expressed their support for formal regulatory oversight. Representatives from Taipei-based fintech firm XREX have emphasized their willingness to collaborate with the FSC in defining regulatory operations.
As of now, a second reading of the bill has not been scheduled, and the FSC is expected to provide recommendations for further refinement of the draft bill before it advances in the legislative process. This cryptocurrency bill marks a significant development in Taiwan’s approach to regulating digital assets, providing a framework for potential future regulations in the sector.
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