Taiwan
has taken its initial steps towards the regulation of digital assets by
presenting a crypto bill to the Legislative Yuan for its first reading. The
proposed legislation, known as the Virtual Asset Management Ordinance Draft
bill, aims to define virtual assets, establish operational standards for asset operators,
ensure customer protection, and mandate membership in industry associations and
regulatory permissions.
Taiwan
has adopted a relatively hands-off approach to the cryptocurrency sector,
primarily regulating it under existing know-your-customer and anti-money
laundering laws.
However,
the regulatory process gained momentum following the collapse of the crypto
exchange FTX in November. The exchange had garnered popularity among Taiwanese
users due to its attractive U.S. dollar interest rates compared to local banks.
Unlike
cryptocurrency regulations in neighboring Hong Kong, the new bill doesn’t take
a firm stance on derivatives or stablecoins. It recognizes that derivatives
associated with virtual assets possess unique characteristics, with specific
mention of perpetual contracts.
This
acknowledgment opens the possibility of crypto derivative-specific regulations
in future drafts of the legislation. Importantly, the bill doesn’t restrict the
trading of virtual assets to professional investors.
Diverging
from Japan, which mandates the use of custodians for locally licensed
exchanges, the draft bill in Taiwan requires the
separation of customer assets from business funds. It doesn’t explicitly
require the use of third-party custodians.
Under
the proposed legislation, operators of cryptocurrency exchanges will be obliged
to commission periodic reports from accountants concerning their operations and
the assets they oversee. Moreover, they will be required to permit regulatory
bodies, such as the Financial Supervisory Commission (FSC), to conduct regular
inspections of their internal control and audit systems.
While
this initial draft of the bill doesn’t specifically mention “Proof of
Reserves,” it does state that the regulator will establish standards for
asset ratios in consultation with the industry and expects licensed exchanges
to adhere to these standards.
Stakeholders
from Taiwan’s cryptocurrency
industry have expressed their support for formal regulatory oversight. Wayne
Huang, co-founder and CEO of Taipei-based fintech XREX, emphasized the need for
collaboration between the virtual asset service provider industry and the…
